How the WTO rules and system are inequitable against the South

Negotiations at the WTO and its predecessor, the GATT, have turned out to be a one-way street, with the developing countries making most of the concessions to industrialised countries. A leading authority on international trade issues elaborates on this grouse of the South.

by Bhagirath Lal Das

AMIDST all the challenges in the World Trade Organisation (WTO), the developing country members are in a very weak position. This weakness is manifested in various ways, some of which can be well-identified. For example: (i) the developing countries have been getting less than equal treatment in several areas, (ii) they have been making significant concessions to major developed countries without getting much in return from them, (iii) several important provisions of special and differential treatment of developing countries have not been properly implemented, (iv) the subjects and areas of interest to the developing countries have been consistently ignored and not attended to, (v) in the working of the dispute settlement process, important interpretations are evolving which have the potentiality of constraining their production and export prospects, (vi) big loopholes and traps have been left in some agreements which could have possible adverse impacts on the developing countries, etc.. All these need to be elaborated and clarified by way of illustrations.

Less than equal treatment

Often there is a call from developing countries for being given special and differential treatment in the GATT/WTO; but one seldom ponders over the instances of less than equal treatment meted out to them over a long period, particularly after the coming into force of the Uruguay Round agreements. Some examples are given below.

The ultimate means of enforcement of rights and obligations in the WTO is retaliation, which is almost totally impractical for developing countries. Though the recommendations and findings of the panels/Appellate Body in disputes are normally accepted and implemented by the countries concerned, in really sensitive cases, a country may hesitate to do so, and then the only option would be to take to retaliation. But developing countries may find this ultimate weapon difficult to use, for both economic and political reasons. Hence, they have an innate handicap in ensuring the implementation of the findings and recommendations, particularly in difficult cases, and thereby they have a basic weakness in enforcing their rights.

Less useful

There is also the serious problem of cost in reaching the stage of recommendations and findings in the dispute settlement process in the first place. This process is so complex and costly that developing countries have to think very seriously before they start the dispute settlement procedure. A developed country, on the other hand, can start the process with much greater ease. Similarly the developing countries also face a serious handicap in defending themselves in a case in the WTO because of the cost involved. Thus the developing countries are very poorly placed in the WTO in respect of enforcing their rights and ensuring observance of the obligations of the other countries.

There is a similar problem in respect of subsidies and dumping. The complexity of countermeasures against subsidies and dumping makes these contingency provisions less useful for the developing countries. At the same time, the costly defence against such measures exposes them to unfair risks of being victimised.

Agreements on zero tariff for certain products which are mainly of export interest to developed countries have been rushed through. There are two specific examples. During the WTO Ministerial Meeting in Singapore in December 1996, a proposal was suddenly placed by major developed countries to have an agreement that there would be zero duty on information technology goods, and they had it approved. Then during the WTO Ministerial Meeting in Geneva in May 1998, there was a provisional agreement on standstill in respect of the duty on electronic commerce, which practically means zero duty. Products of export interest to developing countries have never received such prompt and decisive consideration in the GATT/WTO system.

Services sectors of interest mainly to developed countries have been similarly rushed through in the negotiations to culminate in agreements. Specific examples are the agreements on financial services and telecommunication services. But the sectors of interest to developing countries have had no meaningful progress.

The persons of developing countries get much less favourable treatment in the matter of entering the developed countries than what is accorded to the persons of developed countries. It naturally puts them under added handicap in respect of the opportunities for the supply of goods and services.

International technical standards and rules of origin are being formulated which will have important implications for the market access of goods, but the developing countries have hardly got the resources and capacity to participate in the process.

In the agriculture sector, the subsidies used mainly by some developed countries (contained in Annex 2 to the Agreement on Agriculture), e.g., those for research and development, crop insurance, resource retirement programmes, etc., have been made immune from any countermeasure, whereas those used generally by developing countries (some of them included in Article 6.2 of the Agreement on Agriculture), e.g., land improvement subsidies and input subsidies, do not enjoy such immunity.

In respect of the subsidies on non-agricultural products, those used mainly by developed countries have been made non-actionable, e.g., those for research and development, regional development and environmental standards; whereas the subsidies used by developing countries for the expansion and diversification of their industries do not get such favourable treatment.

In the textiles sector, developed countries have followed the practice of 'less than equal treatment' of developing countries for more than three decades. A special multilateral trading regime was introduced in this sector in the early 1970s in derogation of the normal GATT rules and it has continued for nearly three decades.

Some other products of interest to developing countries, e.g., leather, jute, etc., have been subjected to special restraints on imports in developed countries.

Major concessions by developing countries without getting any in return

The illustrations of less than equal treatment given above are also examples of major concessions given by developing countries to the developed countries without insisting on and getting any commensurate concessions from the latter. Usually this 'softness' has been displayed by the developing countries under three considerations. First, they agreed to some of these measures in the spirit of cooperation, for example in the areas of textiles, leather, jute, etc., as the developed countries, during those days, needed support in their adjustment process in these sectors. Second, in some cases which were more prevalent during the Uruguay Round, they agreed to some concessions under intense pressures from major developed countries. The entry of services and intellectual property rights (IPRs) into the WTO and the agreements on financial services and telecommunication services are some important examples. Third, more recently there has been a tendency among the developing countries to be over-enthusiastic in being accommodative. They have agreed to the proposals without getting or asking for adequate time for proper examination of the implications. The agreements on zero duty on information technology goods and electronic commerce are the main examples.

One-sided concessions

In negotiations on international trade, it is not wrong per se to make concessions, because the exercise of negotiations is meant to be one of give and take. What is totally wrong is to make concessions without getting anything in return. And this is precisely what has happened lately in the GATT/WTO negotiations. When developing countries agreed to let services and intellectual property standards enter the WTO, they made a significant concession to the developed countries which were by far the major gainers from these concessions. Similarly when they agreed to have agreements on liberalisation in financial services and telecommunication services, it was again a major concession made by them. Finally, the agreements on zero duty on information technology goods and electronic commerce have been yet other significant concessions. And there has been no commensurate counter-concession offered or given by the developed countries which have been the main beneficiaries.

Following a rational negotiating strategy, the developing countries should have asked for and insisted on some important concessions in the areas of their own interest. Hardly any developed country ever makes a concession in the multilateral forum without getting anything in return. But with the developing countries, it has been a totally different case; they have been repeatedly making concessions without obtaining any in return.

Special and differential treatment not implemented

Special and differential treatment provisions are contained in Part IV of GATT 1994 and in the various Uruguay Round agreements. Those contained in Part IV, i.e., in Articles XXXVI, XXXVII and XXXVIII, of GATT 1994 are very significant. In these provisions, the developed countries have undertaken a commitment to 'accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties, including customs duties and other restrictions which differentiate unreasonably between such products in their primary and in their processed forms'. They are further committed to 'refrain from introducing, or increasing the incidence of, customs duties or non-tariff import barriers on the products currently or potentially of particular export interest to less-developed contracting parties'.

Besides, the developed countries also have to 'give active consideration to the adoption of other measures designed to provide greater scope for the development of imports from less-developed contracting parties'. These 'other measures' may also include 'steps to promote domestic structural changes, to encourage the consumption of particular products, or to introduce measures of trade promotion'.

(In the GATT, 'less-developed contracting parties' mean the developing countries.)

Of course, these commitments are not of a contractual nature, in the sense that there can be no retaliation for non-fulfilment of these obligations. However, it does not mean that these commitments do not have to be implemented. But in reality, these provisions have never been taken up seriously by the developed countries, and the developing countries have not been able to have them implemented.

In the new WTO agreements, there are very few elements of special and differential treatment in the nature of the actions of developed countries and expectations from developing countries. One example of the former is in Article 66 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) which makes it obligatory on the developed countries to 'provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least-developed country Members in order to enable them to create a sound and viable technological base'. And an example of the latter is the provisions of Article XIX of the General Agreement on Trade in Services which requires 'appropriate flexibility for individual developing country Members for opening fewer sectors, liberalising fewer types of transactions, progressively extending market access in line'.

Developing countries have not been able to persuade developed countries to implement these provisions sincerely.

Areas of interest to developing countries ignored

The subjects of interest to developing countries have hardly ever occupied centrestage in the GATT/WTO. There have been attempts by developing countries time and again to have attention focussed on these issues, but they have not succeeded. Some important examples are given below.

Tariffs in the developed countries on the products of special export interest to developing countries continue to remain high. Quantitative restraints on imports in several sectors of their interest continued for a long time, and still continue in some important sectors like textiles. Practically nothing has been done to eliminate or reduce harassment of the developing countries through measures in the garb of anti-dumping action, conformity with technical standards, protection of the environment, etc.. Service sectors of interest to them have not been taken up for serious negotiation; for example, the movement of labour has been given only scant attention so far. The possibility of unilateral trade action by a major developed country still remains in its legislation and it continues to use this provision to put pressure on other countries, particularly the developing countries. This provision has not been removed, even though there is a specific commitment in the WTO Agreement that the laws of countries should be made fully compatible with the obligations under the agreements covered by the WTO.

Trends in the dispute settlement process

Though the new dispute settlement process has brought about a certain degree of improvement over the past, some trends have been developing recently which are adverse to the interests of developing countries. The panels and Appellate Body have often adopted interpretations which constrain the rights of developing countries and enhance their obligations. Four particular cases may be cited in this regard.

First, in the Venezuela gasolene case, the Appellate Body has expanded the discretion of a country in taking trade-restrictive measures for the conservation of non-renewable natural resources. The Appellate Body has said that the discretion of a country in this matter is not limited by the test of necessity, rather it is adequate if there is a nexus between the particular trade-restrictive measure and the protection of a non-renewable natural resource. Second, the Appellate Body has said in the India woollen shirts case that the onus of justifying the trade restraint in the textiles does not lie on the country applying the restrictive measures; rather it is the complaining country which has to demonstrate that the conditions prescribed for the restraint have not been fulfilled. Third, the panel in the Indonesia car case has denied developing countries the flexibility, allowed by the Agreement on Subsidies, to give subsidies for the use of domestic products in preference to an imported product. The panel has taken the stand that such a measure would violate the Agreement on Trade-Related Investment Measures (TRIMs). Fourth, the Appellate Body in the recent shrimp-turtle case has given interpretations, at least four of which have adverse implications for developing countries. These are enumerated below.
(i) It has tried to establish the primacy of the conservation of the environment over the free flow of goods under the normal GATT rules, and thereby it has diluted the disciplines on the general exceptions as provided in Article XX of GATT 1994.
(ii) It has considered the turtle to be an 'exhaustible natural resource' on the ground that it is covered by some multilateral environment agreements for the protection of endangered species. (iii) It has directly implied that a country can take trade-restrictive measures for actions and effects outside its jurisdiction, on the ground that the extra-territorial nature of the action gets blurred as the turtles are migratory.
(iv) It has approved the filing of briefs and opinions before the panels by persons and organisations outside the governments which are involved in the particular case. Serious implications of these interpretations are likely to unfold over the coming years.

Loopholes and traps in the agreements

Significant loopholes have been left in some important agreements which act to the detriment of developing countries. Three examples will illustrate this feature. In the Agreement on Textiles, the developed countries undertook the commitment to bring products accounting for 33 percent of their imports into the normal WTO discipline and thus exclude them from the special restrictive regime of the textiles sector by 1 January 1998. The totality of the products out of which this percentage is to be calculated is listed in an annex to the agreement. The loophole is that the list in this annex includes a very large number of items which have not been under restraint. The developed countries have taken advantage of this loophole and chosen for the liberalisation process up to 1 January 1998, only such products which are not under restraint. In this manner, the obligation is fulfilled and yet there is no liberalisation by them in practice.


Then the Agreement on Textiles also contains a faintly visible trap. Its Article 7.3 contains a requirement of sectoral balance of rights and obligations, a concept which is alien to the GATT/WTO system, which works on the principle of overall balance. There is apprehension that it may be a trap for justifying the possible reluctance of developed countries on 1 January 2005 to abolish the special restrictive regime in this sector on the plea that developing countries have not adequately liberalised their textile sector.

The special provision for dispute settlement in the Agreement on Anti-dumping is also an example of a major loophole. While this agreement has brought in some measure of objectivity in the investigation of dumping, the whole subject of anti-dumping has been practically excluded from the normal dispute settlement process of the WTO. In these cases, the role of the dispute settlement panels has been severely curtailed inasmuch as they cannot pronounce whether an action or omission of a country violates its obligation, a role which is almost a routine feature in disputes in all other areas.

These specific adverse situations, grouped for convenience into six categories above, are examples of the weakness of the developing countries in the WTO. There may be many more such examples. Clearly the developing countries have been on losing ground in the WTO, more so in recent years. (Third World Resurgence No. 108/109, Aug-Sept 99)

Bhagirath Lal Das was formerly India's Ambassador and Permanent Representative to the General Agreement on Tariffs and Trade (GATT). Later, he was Director of International Trade Programmes in the United Nations Conference on Trade and Development (UNCTAD).

The above article is an excerpt (Chapter 3) from the author's paper entitled Strengthening Developing Countries in the WTO. The paper, part of a series on trade and development published by Third World Network under its 'TWN Trade & Development Series', was prepared under the Project of Technical Support to the Intergovernmental Group of Twenty-four on International Monetary Affairs (G-24). It will also be published in UNCTAD, International Monetary and Financial Issues for the 1990s, Vol. XI.