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TWN Info Service on WTO and Trade Issues (Jul19/15) 
9 July 2019
Third World Network

Reclaiming development in the WTO
Published in SUNS #8940 dated 5 July 2019

Geneva, 4 Jul (Kanaga Raja) - Development must be at the centre of the WTO work program 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, industrialise 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 the panellists at an event, co-organised by South Africa and India on 2 July at the World Trade Organisation.

The theme of the high-level panel discussion was on "Reclaiming Development in the WTO."

The panellists included Ambassador Francois Xavier Ngarambe of Rwanda, who is also Chair of the 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 Mr. Richard Kozul-Wright, Director of the UNCTAD Division on Globalisation and Development Strategies.

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

In her opening remarks, Ambassador Xolelwa said that the panel discussion is timely because the multilateral trading system from the early days of the GATT recognised the differences in the level of development between developing and developed countries.

It ensured that special and differential treatment (S&DT) is one of the cornerstone principles of the multilateral trading system, and that it is still an important principle that needs 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 but 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 emphasised that the enormous development divide between developing and developed countries when the Enabling Clause was integrated into the GATT is still as relevant today as it was back then.

She noted that this panel discussion is a continuation of a process that was launched in New Delhi (at a mini-ministerial meeting in May) where Ministers agreed that developing countries need to continue to coordinate positions as well as themselves in the WTO to ensure that even the discussions around the reform of the WTO fundamentally ensure that we are able to promote inclusive growth and sustainable development.

Highlighting the old divides that are still there since the creation of the WTO and the "new divides" that are emerging in the context of the digital economy as well as technological advancements that underpin 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, are "ill advised".

It will also make the negotiation of future agreements in the WTO very difficult because developing countries are able to take the commitments that they do under trade agreements because they have the necessary safeguards that are available through the flexibilities that are 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," she said.

The Chair of the Committee on Trade and Development in Special Session, Ambassador Francois Xavier Ngarambe of Rwanda, then provided a status report of the negotiations in the Committee to date.

On the status of the negotiations in the Committee, Ambassador Ngarambe simply said "no progress. [There is] nothing happening, [and] nothing to report."

"That is the reality," he explained, adding that this was the reality before he accepted to chair the committee and even before that.

It is high time that members sit and conduct deep analysis on how one of the most important founding principles, very clearly written in the Marrakesh treaty, is 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."

Ambassador Ngarambe noted that since the early GATT years and throughout various rounds of negotiations it has been recognised that a certain degree of discrimination was necessary to create a level playing field for the weaker members of the organisation, the very definition of S&DT which has been a defining feature of the multilateral trading system (MTS).

On recent developments on discussions on this issue in the Committee, the Rwandan envoy said that there are no significant changes from the report that he had made to the Trade Negotiations Committee (TNC) meeting in May.

He said that following his election as Chair of the Committee, 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 in a listening mode.

In his report to the TNC, he had said that he had not sensed any shift in members' positions.

He had also reported that there is 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 continue on how to achieve this objective, he said, pointing to two extreme views.

For some, S&DT is now out of the question. It is a topic of the past. Forget S&DT. No more S&DT in current or future agreements. That is their stated position. Talk about development, but not S&DT. S&DT and development are two different things. That's one extreme position, he said.

The other extreme position says that S&DT is part of the founding agreement, and that S&DT is an entitlement for all developing countries.

No discrimination among developing countries irrespective of their level of development. All developing members are entitled to the whole list of S&DT.

Those are the two extreme views, said the Chair of the Committee.

At the session, Richard Kozul-Wright, Director of the UNCTAD Division on Globalisation and Development Strategies, presented the main findings from a new UNCTAD Research Paper titled "From Development to Differentiation: Just how much has the world changed?".

[The UNCTAD paper 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 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 who should, consequently, be allowed to self-declare their development status.

[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.

[According to the paper, the analyses show that the number of people living below poverty lines has in fact increased, with 64% of the total number of poor in the world residing in South Asia and Sub-Saharan Africa.

[The paper said that taking the higher World Bank measure ($5.50) and estimating the extent of poverty, with and without China, 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 (2011 PPP) and $3.20 (2011 PPP) 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; and the Harvard economist Lance Pritchett suggests that a more realistic figure should be between $10 to $15 per day, adding to the poverty challenge everywhere in the developing world.

[According to the paper, trends in the human development index (HDI) also confirms the widening gap between developing countries and developed countries and 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 the chances of 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 S&DT or not.

["Differentiating between developing countries on a subset of criteria is therefore 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 is found to meet the many other challenges facing the international community in the 21st century," the paper concluded.]

At the panel discussion, on the question of what is development, Kozul-Wright explained that development is a complex multi-dimensional process, which makes it difficult to measure as a consequence.

There has always been a problem of measuring development, he said, adding that development is a question of structural change, and structures matter.

He said structure is where you get the obstacles to development, the constraints on development, the gaps in development process, and the kinds of thresholds that you have to cross to move from being developing to developed.

He also said that in an interdependent world, development is 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" is a major challenge of the development process. Closing the gap on those countries that are clearly developed is integral to the discussion of what is development.

Development is also about the means and ends, particularly how you connect means to ends and this raises issues of policy, and of attitudes of institutions as being central to the question of what is development. In that discussion, history always matters.

Kozul-Wright also said particularly relevant to the discussion today is that there is a highly subjective dimension to what is development. As to where trade fits into the story of what is development, he said that trade is clearly a means and not an ends to development.

He said that trade policy - the connection between means and ends - is a highly contested terrain and has been across the entire post-war period. Moving from the Havana Charter to GATT was a highly contested process.

Kozul-Wright noted that a report which was commissioned by the GATT in the late 50s as a first attempt to put development into the GATT was highly contested and gave rise to some extent to 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 a highly contested process, and the move from the "Singapore issues" to the Doha Development Agenda was a highly contested process.

And where we go next is also a highly contested process, said Kozul-Wright.

Trade policy has always been a contested issue, he said, adding: "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 that is based on "do as I say, not as I did", he said that from the work of Prof Ha Joon Chang and other economic historians it was clear that all countries used inflation, the role of the state and import substitution as part of their development strategies, and they did so successfully including the middle income countries.

He pointed out that 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 early part of 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, he said.

He also said that how you combine diversification and specialisation is the big challenge of trade policy.

"Ultimately in our understanding of the challenges around trade policy and managing trade is that we live in a second best world at best. 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."

And policy space and the fight for more policy space is being linked to other means of leveling 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.

Ambassador Zhang Xiangchen of China said that in Geneva, UNCTAD is a comfort zone for developing countries, and not like the WTO, which is a controversial platform for developing members.

He also agreed that this panel discussion is a continuation of the dialogue of the mini-ministerial meeting of developing countries held in New Delhi (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 that argued that development is a centrepiece of the WTO and that S&DT is legitimate for all developing members.

Ambassador 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 (DDA).

"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 the outcome on S&DT is not a charity granted by some others to us, but is "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 added: "Of course, we recognise 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 members to discuss new rules on industrial subsidies, the Chinese envoy said that while some believe that the current trade tensions is because of the so-called non-market economy strategy or regime of China and support and subsidies to its own industries, "it (China) cannot go along with that argument. It is wrong."

Ambassador Zhang explained that basically developing countries including China are at the low end of the global value chain.

"Of course, it is our legitimate right to support our industry, to have them to be 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."

According to Ambassador Zhang, the rationale behind the trade tension/trade war is that some developed countries fail to address their domestic problems.

They fail to help the groups of people in their country who are in a difficult position, so they now want to shift their domestic focus to international trade and find an easy scapegoat, and China is this easy scapegoat.

What is the implication of this kind of initiative on development on other developing countries?

At the moment, he said, they are attacking China mainly, but it will have systemic implications on the developing countries.

For other developing countries who have this plan to achieve their objective of industrialisation, their plan or strategy will be restricted because of this so-called strengthening of the rules on industrial subsidies, he said.

"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," said Ambassador Zhang.

On the issue of transparency, he said that this is an obligation for all members, both developed and developing. For the smaller developing members, all we can do is 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, Ambassador Zhang said that the developing countries also have defensive interests and concerns such as the digital divide.

He said that China chose to join the Joint Initiative (on e-commerce) 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 has the same or similar concerns like 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 recognise I couldn't achieve my legitimate objective, I will walk away from the table," said Ambassador Zhang.

He summarised that during this process of WTO reform, "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."

Ambassador Diego Aulestia Valencia of Ecuador said that WTO reforms have to be sought in terms of increasing the importance of development.

He said that S&DT is central to the multilateral trading system, and is 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 said.

Ambassador J. S. Deepak of India said when he sees the title of "reclaiming" development (theme of the session) he knows that it a tough job and the fact that the discussions on development in the WTO as narrated by the Chair of the Committee on Trade and Development in Special Session where there has been no progress reported, makes it even more difficult.

"So I suppose this is the time when the going is tough, the tough needs to get going."

Noting that WTO reforms are now at the centre stage of the discussions in Geneva, he said that as the original proponents of reforms to correct the asymmetries in the covered agreements, the developing members are more than willing to engage constructively in these discussions.

However, the reform agenda being propagated by some developed members seeks to push a one-sided narrative with disregard for issues of importance and concerns to developing countries, and erodes the core principles of consensus-based decision-making, non-discrimination, and S&DT.

He said the recent proposals to differentiate between developing countries, (that) impose punitive strictures for non-compliance for notification obligations and do away with S&DT in negotiations including on fisheries subsidies are illustrative of the lack of balance in the reform proposals that have been tabled.

This needs to be remedied and soon, said Ambassador Deepak. "We need to have on the table proposals that reflect the views of developing countries including LDCs. Without balance, the idea of WTO reform will be dead as a Dodo."

While there has been progress in the world, gaps remain. The world has changed, but not enough.

He said that in its recent communication, the US has employed selective economic indicators to argue that there has been significant re-ordering among countries and increasing economic differentiation among them.

"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 in the economies are becoming more pronounced."

Ambassador Deepak said the claim that many developing countries no longer need S&DT even as an adjustment tool, rests to a considerable extent on the poverty, numbers and graph statistics.

This methodology, as the UNCTAD paper points out, has major flaws, he said.

He said studies on the correlation between poverty reduction and rural development gains show that reduction in poverty trends do not provide any basis for pronouncing an end to the development challenge and re-classifying countries on such a basis.

If at all we are to use economic indicators to gauge the development level of a country, these must be per capita indicators because the essence of development is the human being.

In any case even if you look at per capita, the status of developing countries is far different from developed countries.

A quick assessment of numbers highlights the gaping divide between the levels of development in developing members all across the globe.

Highlighting some startling figures, Ambassador Deepak pointed out that India is home to 35.6% of the world's poor compared to 38% in all LDCs put together.

During the period 2010-2017, on average India's per capita GDP was 2.9% that of the United States.

Approximately 61.5% of India's population is dependent on agriculture for their livelihood and yet data from 2016 shows that domestic support per farmer in the US is 267 times that of India.

Furthermore, India has 81 times the number of farmers per hectare as compared to the US.

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

He said that access to broadband which is the basis for a number of 21st century growth engines like e-commerce is the most wide indicator for measuring digital development.

In the developing world, most broadband access is via mobile phones, he said, noting that as far as mobile broadband penetration is concerned, from 2007 to 2016, it increased from 19 percentage points to 90 percentage points in developed countries as compared to 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 are no grounds for diluting S&DT, the Indian envoy underlined.

Indeed, if anything, in light of the imprecise, un-enforceable, and best endeavour nature of existing S&DT obligations in the WTO agreements, the call should be for more, not less (S&DT), he said.

The developed country narrative of "do as I say, not as I did, or as China did, or as Adam Smith suggested, is therefore completely unacceptable," said Ambassador Deepak.

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

"It is a necessary condition for inclusive development and for taking everybody along, a cliche which all of us do lip service to," he said.

He pointed out that the self-declaration of development (status) has been a longstanding practice since the early days of the GATT and therefore it became part of the customary practices to be followed by the WTO within the meaning of Article 16 of the Marrakesh Agreement.

Depriving developing members of the policy space that is a right and that was enjoyed by each developed member in their 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.

Only developing economies themselves have adequate knowledge of the local conditions to decide whether they should be categorised as developing members to avail S&DT or not.

"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," Ambassador 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 Marakesh Agreement. We cannot give up on this."

Illustrating the need for unity and working together amongst developing countries in taking the agenda forward, Ambassador Deepak said "we need to be clear that unless we hang together, we are likely to hang separately."

 


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