Developing countries seek review of S&D implementation

At the recent informal meetings of the WTO General Council, both India and Egypt highlighted the inadequacies in and unsatisfactory implementation of the special and differential treatment provisions in the various Uruguay Round agreements, with India calling for a review of these provisions.

by Chakravarthi Raghavan

GENEVA: There is a strong need for immediate review at the WTO of the special and differential treatment (S&D) provisions for developing and least developed countries in order to ensure that these countries get the full benefits of the multilateral trading system, India has urged in a paper submitted at the WTO.

At the informal meetings of the WTO General Council preparatory process for the 3rd Ministerial meeting in 1999, under the rubric of implementation, India and Egypt put forward two separate papers focusing on the S&D provisions in the various agreements, and highlighting both their inadequacies and lack of implementation.

In statements at the informal General Council, a number of developing- country delegations supported the focus on the issue as part of the implementation review process. Many of them also raised the non-implementation of some of these provisions under individual agreements.

A process of evaluation of the various S&D provisions and their implementation in various agreements, India has suggested in its paper, should be undertaken through a specially constituted working group or through special and dedicated sessions of the Committee on Trade and Development (CTD) in order to formulate amendments to the various agreements and place them for discussions before the General Council.

This evaluation process and formulation of amendments has to be a time-bound process to be completed by December 1998, so that serious discussions on the proposals could start in the General Council in January 1999, the Indian paper suggests.

Fundamental issue

The Egyptian paper says that S&D is a fundamental and cross- cutting issue for developing countries in the multilateral trading system (MTS) and an integral part of the balance of rights and obligations in the Uruguay Round Agreements (URAs). With developing countries having assumed greater obligations in various areas, the nature and focus of S&D should develop.

As new negotiations are set to start by the year 2000, adds the Egyptian document, it is imperative to examine how S&D provisions have been implemented in various agreements; whether they have yielded concrete benefits and ensure that developing countries can implement their obligations; whether S&D has achieved its objectives; and the experience of developing countries in their efforts to take advantage of these provisions.

The underlying principle of the Uruguay Round, points out the Indian paper, is to create a fair and equitable MTS leading to development and increasing incomes - and these are recognized in the preamble and objectives of the WTO, which specially calls for positive efforts to ensure that developing countries and LDCs among them secure a share in the growth of international trade commensurate with their economic development. These principles have been further amplified through specific provisions in individual agreements, decisions and declarations.

The issue of S&D has been engaging the attention of negotiators since the 1947-48 Havana Conference, and at all times developing countries have stressed the peculiar structural features characterizing their economies and distortions arising out of historical trade relationships.

The Egyptian paper places the S&D provisions in five categories: those aiming at increased trading opportunities, including through more favourable market access in developed countries; those requiring developed countries to safeguard the interests of developing countries while taking certain measures; those giving developing countries some flexibility and policy discretion or exempting them from some obligations applying to developed countries; support measures by developed countries or the WTO or other organizations, including those related to technical and financial assistance; and limited time-derogations from rules.

Two categories

The S&D provisions in the URAs, according to India, fall into two main categories:

  • time-limited derogations in the form of longer transition periods, more favourable thresholds in the application of countervailing measures and for undertaking certain commitments, greater flexibility with regard to certain obligations; and

  • clauses providing for specific, although undefined, action by developed countries under certain agreements, while dealing with developing countries.

In respect of the first category, says the Indian paper, it is necessary to evaluate the provisions presently available in various agreements with a view to determining whether changes are necessary and whether the intentions of negotiators have been translated into practice. The experience of the past three years of developing countries will provide clear guidelines for such evaluation.

In agreements like the Agreement on Textiles and Clothing (ATC), while provisions have been implemented in letter, the expected market-access benefits have not materialized. To that extent, the ATC has demonstrated its inability to achieve the underlying objectives. Its provisions must be studied exhaustively and positive recommendations should be made to the Ministerial Conference.

The issues raised by the first category of provisions are also relatively straightforward and could be dealt with in terms of increase in transition periods, improvements in de minimis margins, and greater flexibility for developing countries and LDCs.

But the second category of S&D provisions poses more problems and they involve differences of opinion between developed and developing countries on the meaning and interpretation of the provisions. And some of the provisions, more in the nature of "best-endeavour" clauses, are virtually ignored in the implementation process.

The balance-of-payments (BOP) provisions, particularly in GATT Art. XVIII:B, helped developing countries in the pre-WTO period to enjoy some flexibility in their trade regimes, permitting them to impose quantitative restrictions (QRs) on imports for BOP reasons, taking account not only of their foreign exchange reserves position, but also of the development needs of the economy.

This is clearly set out and elucidated in para 2 of Art.XVIII and para 8 of Section B of Art.XVIII, while para 9 of Section B enables developing countries to maintain QRs to maintain a level of reserves adequate for implementation of economic development.

It is thus clear that the intention of negotiators was to take into account the development needs of developing countries while estimating the adequacy or otherwise of foreign exchange reserves in the process of determining legitimacy of maintenance of QRs.

But in actual fact, assessments of adequacy of foreign reserves are made exclusively on the basis of a comparison of the volume of reserves with the value of imports during the past few years, and the development dimension is ignored.

Role of the IMF

While the Indian paper does not directly raise this, under Art. XV of GATT 1994, the IMF provides in all BOP consultations, statistical and other facts relating to foreign exchange, monetary reserves and the BOP, and the WTO Members are to accept the "determination" of the Fund as to what constitutes a serious decline of monetary reserves, a low level of reserves or a reasonable rate of increase in reserves.

And the IMF, whose staff act much more in tune with the US Treasury, pushing US mercantilist interests, has invariably, in providing its assessment of the adequacy or otherwise of the reserves, been mixing up both short-term capital flows (which by their very nature are volatile and fickle) and medium- to long-term flows. The IMF reports to the BOP Committee make no real assessment of "development needs" or the needs for foreign exchange and resources of a country in terms of its development objectives.

The proviso to para 11 of Art. XVIII:B specifically provides that no contracting party can be asked to change its development policies so as to render unnecessary the restrictions. But this has been ignored by the Fund in making its assessments. The IMF has also been applying the neo-liberal views of economics, and in tandem with the World Bank, has been pushing "trade liberalization" on developing countries, and more recently attempting to get the WTO to "persuade" the countries to bind their lower applied tariffs.

Without going into the IMF role, the Indian paper points out that in practice no distinction is being made between the Art. XII provisions (on restrictions maintained by developed countries for BOP reasons) and those under Art. XVIII:B which provides a special dispensation for developing countries.

Brazil, in its presentations in the preparatory process in the General Council, raised the BOP issue (without reference to the S&D dimension).

"The developments of the current global financial crisis," Brazil's ambassador Celso Lafer said at the informal General Council meeting, "have substantiated what Brazil has been stressing, for quite some time now, in the meetings of the BOP Committee. The new international financial environment and the rapid dynamics of transborder capital flows underline the need for a more sophisticated evaluation of the stability or the reliability of numbers concerning international reserves."

"This is an issue that should be in the agenda of WTO relations with the IMF, bearing in mind the terms of Art. III.5 of the Marrakesh Agreement which calls for the cooperation between the Bretton Woods institutions 'with a view to achieving grater coherence in global economic policy-making'," Lafer added.

The IMF methodology of calculating the reserves has been challenged by other economists, including by Canadian academic Gerry Helleiner, who heads the G24 Technical Assistance project, in an introduction to the G24 research papers.

Stricter interpretation

In its paper on S&D, Egypt has complained that developing countries have been witnessing a trend towards stricter interpretation of S&D provisions, and this is a matter of deep concern. Referring in this connection to the manner in which a few developed countries are dealing with Art. XVIII, Egypt underscores that the GATT has two sets of rules to govern import restrictions for BOP purposes - Art. XII which can be invoked by any WTO member, and Art. XVIII:B which can be invoked only by developing countries.

The difference between these two articles, Egypt notes, is that Art. XVIII:B permits import restrictions to the extent necessary to deal with the "threat" of serious decline in monetary reserves, and allows developing countries to impose QRs on imports for BOP reasons, taking into account not only their foreign exchange reserves, but also the developmental needs of the economy. Art. XII, on the other hand, may only be invoked if the threat is "imminent" and reserves "very low".

While Art. XVIII:B of GATT thus has provided developing countries with a degree of flexibility in their trade regimes, more recently, assessments of the adequacy of foreign exchange reserves are being made mainly on the basis of a comparison of the volume of reserves with the value of imports during the past few years. "The development dimension is being sidelined and the distinction between Art. XVIII:B and Art.XII is becoming less and less apparent."

Other subjects raised in these papers include those relating to the Anti-dumping, the Subsidies and Countervailing Measures, the Sanitary and Phytosanitary (SPS) and the Technical Barriers to Trade (TBT) agreements, TRIMs, TRIPs, Services, the Least Developed and Net Food- Importing Countries, Agriculture and Dispute Settlement. (Third World Economics No. 197, 16-30 November 1998)

Chakravarthi Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.