Plurilateral negotiations, WTO reform and other initiatives: Further marginalising the developing countries at the WTO

Countries of the Global South are already in a disadvantaged position in the multilateral regime governing international trade. New proposals being pushed by the developed countries at the World Trade Organisation could further tilt the odds against them.

Abhijit Das

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1.   Introduction

FOR the past 75 years, the multilateral trading system, as embodied initially in the General Agreement on Tariffs and Trade (GATT) and subsequently the World Trade Organisation (WTO), has provided the overarching framework of rules for the conduct of international trade among its members. The agreements at the GATT/WTO have substantially curtailed the flexibility available to developing countries to pursue development-oriented policies in many areas including agriculture and manufacturing. At a time when the world is grappling with multiple crises – food, energy and climate change, to name a few – fresh attempts are being made at the WTO that could compel the developing countries to become further subservient to the developed countries. As these initiatives could significantly erode the economic prospects of developing countries, it is relevant to comprehend what is afoot at the WTO.

As a threshold issue, this article examines how the rules of the multilateral trading system have progressively shrunk the policy space for developing countries. In section 3, the article discusses how the developed countries failed to deliver on the development promise contained in the Doha Work Programme of the WTO (popularly referred to as the Doha Round). After the failure of the developed countries under the Doha Round to achieve their objective of prising open the markets in developing countries, attempts are being made to curtail the special and differential treatment provisions at the WTO. This aspect is discussed in section 4. Sections 5 and 6 examine two contemporary issues – digital economy and trade-environment linkage – to highlight attempts at negotiating rules for preserving the first-mover advantage of corporate entities in the developed countries and preventing developing countries from implementing catch-up policies in these two sunrise sectors of considerable economic promise. Section 7 examines issues related to WTO reform and discusses how the outcomes of this process could modify the institutional architecture of this organisation and further tilt it against the developing countries. Section 8 provides some broad conclusions and makes a few suggestions for developing countries.  

2. How GATT/WTO rules have shrunk the policy space for developing countries

If we take a bird’s-eye view of the evolution of the multilateral trading system, two important points cannot be missed. First, the developed countries have repeatedly sought to expand the rules of the GATT/WTO to promote the commercial interests of their entities, particularly in new and emerging areas of economic activity. This is reflected in the inclusion of rules on services and intellectual property rights (IPRs) under the Uruguay Round of multilateral trade negotiations held during 1986-94, which resulted in the creation of the WTO. These were areas of economic activity of growing salience mainly to the developed countries. In line with this historical trend, in more recent times, the developed countries are seeking to negotiate rules at the WTO on two sectors of huge economic potential for the future – the digital economy and climate-friendly products. These negotiations remain to be concluded.

Second, the GATT/WTO rules have prevented most developing countries from implementing policies to catch up with the developed countries. Consequently, much of the economic gains from the new and emerging sectors have accrued to the developed countries, with the developing countries getting a minuscule share of the pie.1 Further, even in traditional sectors, such as manufacturing, GATT/WTO rules have prevented countries from implementing policies, including mandating purchase of domestically produced inputs, to give a fillip to domestic producers. In addition, the requirement not to impose customs duties above the negotiated ceilings (technically called ‘bound rates’) has constrained developing countries in protecting their producers from import competition. In some cases, this has had a devastating impact on the local economy.2 In the pharmaceutical sector, the provisions of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights prohibit countries from reverse-engineering medical products, thereby raising the cost of healthcare in developing countries but protecting the windfall profits of business entities manufacturing patented products. In respect of agriculture, it is widely recognised that the Agreement on Agriculture is riddled with many asymmetries and imbalances,3 which have hurt the farmers in many developing countries. While the rules of this agreement allow considerable leeway to the developed countries to provide subsidies targeted to specific agricultural products, most developing countries cannot provide product-specific subsidies beyond 10% of the value of production of the concerned product. WTO rules also come in the way of developing countries seeking to effectively ensure food security for their poor and hungry.

Given the context mentioned above, it is not surprising that within five years of the establishment of the WTO, many developing countries started voicing strong concerns on many WTO rules. How were the concerns of developing countries addressed? The next section addresses this question.

3. Failure of the developed countries to deliver on the ‘development promise’ under the Doha Round

At the Doha Ministerial Conference of the WTO, held in November 2001, the developed countries pushed strongly for launching a new round of multilateral trade negotiations. However, this was strongly opposed by a large number of developing countries. Eventually, the latter group softened their resistance and agreed to the Doha Work Programme after the developed countries emphasised that that was meant for development. To illustrate, in his plenary statement at the Doha Ministerial Conference, Pascal Lamy, the European Union (EU) Trade Commissioner, explicitly mentioned that development belongs ‘right at the heart of the multilateral trading system’. Referring to the likely contribution of the Doha Round, Robert Zoellick, the US Trade Representative, stated that it would be ‘the starting point for greater development, growth, opportunity, and openness throughout the world’.  In fact, in the Doha Ministerial Declaration the development promise was specifically articulated in many paragraphs, including the following: ‘The majority of WTO Members are developing countries. We seek to place their needs and interests at the heart of the Work Programme adopted in this Declaration.’4  

As the negotiations under the Doha Work Programme evolved, the determination of the developed countries to address development issues, articulated so explicitly and firmly in the Doha Ministerial Declaration, considerably weakened. They thwarted proposals that were aimed at redressing some of the past imbalances in the WTO agreements and seeking development through trade. Within a few years into the Doha negotiations, the developed world did not shy away from saying that WTO negotiations are about trade and not about development. At the same time, the developed countries did not hesitate in promoting their export prospects by seeking to pry open the markets in developing countries. However, a large number of developing countries created effective coalitions, particularly in agriculture, and thwarted the moves of the developed countries.5

Unable to have their way at the negotiating table, the developed countries eventually abandoned the Doha Work Programme at the Nairobi Ministerial Conference held in 2015, but blamed the developing countries for the logjam in the negotiations. After having failed to deliver on the development promise, the developed countries have started creating pathways for reordering the global trading system to achieve their mercantilist objectives. What are some of these initiatives and what could be their likely consequences for the developing countries? We address four specific initiatives in the subsequent sections.

4. Attempts at curtailing special and differential treatment in the WTO

An important element of the GATT/WTO rulebook is the following: ‘The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties.’6 Over nearly six decades, this has formed a basis for special and differential treatment (S&DT) provisions and less than full reciprocity under the GATT/WTO. This has been reflected in different ways, including the following: some of the WTO obligations are less onerous for developing countries; developing countries get a longer transition period for implementing their obligations; and the possibility of developing countries receiving technical assistance for implementing their obligations. It should be noted that at the WTO the member countries have the flexibility to self-select themselves as a developing country, and benefit from S&DT provisions.

Over the past three years, the US and a few other developed countries have sought to dilute and undermine S&DT. In this context, the following assertion by the US appears particularly relevant: ‘All the rules apply to a few (the developed countries), and just some of the rules apply to most, the self-declared developing countries. The perpetuation of this construct has severely damaged the negotiating arm of the WTO by making every negotiation a negotiation about setting high standards for a few, and allowing vast flexibilities or exemptions for the many.’7 Thus, the objective of the developed countries is that developed and developing countries must comply with the same rules. Such a regime, based on reciprocity, will mainly benefit those who are better endowed with capital and technology. Those countries which face constraints on these two crucial elements will not be able to fully benefit from the reciprocal regime. By undermining a fundamental underpinning of the multilateral trading system – S&DT provisions – the developed countries seek to impose further constraints on the ability of developing countries to pursue development-oriented policies.

Why do the developed countries want to deprive developing countries of S&DT provisions in future negotiations, and instead make them adhere to a common framework of rules? Hard-nosed commercial interests lie at the core of the answer to this question. This is explored in the following two sections, which focus on two areas of considerable economic significance for the future.

5. Using the trade-environment linkage to promote mercantilist objectives

The climate change crisis is compelling countries to transition to a low-carbon economy. This is likely to result in a surge in demand for products required for producing renewable energy, as well as products that consume less energy. Thus, climate-friendly products (also referred to as ‘green products’) provide huge commercial prospects now, and more so in a few years. In its transition to a low-carbon economy, a country can either depend almost entirely on imported green products/technologies, or it could seek to meet at least a part of its demand from domestic sources.

The developed countries are seeking to use negotiations at the WTO to negotiate rules that would prevent developing countries from nurturing domestic production of climate-friendly products. This is sought to be achieved through multiple initiatives, including the attempt to get countries to agree to eliminate tariffs on environmental goods. As climate-friendly products are most likely to emerge in developed countries, other countries would need to use various policy instruments, including tariffs, for catching up. The attempt at the WTO is to shut this option.

Further, in an initiative titled Trade and Environmental Sustainability Structured Discussions (TESSD), some WTO members have launched ‘dedicated discussions on how climate-related trade measures and policies can best contribute to climate and environmental goals consistent with WTO rules and principles’.8 These discussions are proceeding without any mandate from the entire WTO membership, and are commonly referred to as a plurilateral initiative. If we take a cue from provisions in some of the recent free trade agreements of the developed countries, it is likely that the outcomes of the TESSD would be twofold:

(i) obligations related to liberalising trade in environmental goods and services, harmonisation of standards at stringent levels and commitment to accord non-discriminatory treatment to domestic and foreign suppliers of products relevant for renewable energy in government procurement, would curtail the ability of developing countries to create a vibrant domestic sector producing climate-friendly products; and

(ii) provide legal justification to the developed countries for erecting non-tariff barriers to exports of other countries, ostensibly for protecting the environment.

The overall impact of the likely outcomes of the various environment-related initiatives among some WTO members is clear – developing countries would become overwhelmingly dependent on imports from the developed countries of climate-friendly products and technologies. Further, the rules would facilitate the exports of the developed countries, while providing a justification to these countries for blocking imports from developing countries, which might not be able to comply with stringent environment-related conditionalities. Thus, the trade-climate linkage is sought to be used by the developed countries to pursue mercantilist objectives.

However, the developed countries face an important hurdle in securing their mercantilist objectives. Most of the new rules being contemplated by them can be included in the WTO rulebook only after all WTO members agree. Those countries that have chosen to stay out of these plurilateral discussions/negotiations are unlikely to agree to the new rules. How the developed countries seek to overcome this hurdle is discussed in section 7. But before proceeding to that section, it is also relevant to discuss developments at the WTO in another sunrise sector – the digital economy.

6. Seeking to lock out developing countries from economic benefits from the digital economy

The digital sector is set to be one of the main drivers of economic growth in the future. Given the ecosystem required for creating new digital products, it is a reality that most of these will emerge in developed countries. It is also true that behind every successful digital product lies access to a huge trove of digital data. This can be an area of comparative advantage for developing countries, who are some of the largest sources of data. By using suitable policy initiatives, they can leverage their data advantage to create jobs and generate incomes from the digital economy.

However, the developed countries are seeking to thwart this by negotiating rules that would mandate almost unrestricted cross-border data flows and prohibit localisation of servers. Further, if government data is shared with domestic entities, then the commitments might require the developing country to share it with other countries on a non-discriminatory basis. These obligations will prevent developing countries from leveraging their huge data advantage to create a vibrant domestic digital economy and nurture domestic digital start-ups, thereby locking them out of making any significant economic gains. Overall, it is apprehended that the provisions on the digital economy would make developing countries overwhelmingly dependent on imported digital products, even if the products are based on their data at the back-end.

The negotiations on rules related to the digital economy are being undertaken by some WTO members without the consent of the entire WTO membership. As with the discussions/negotiations on issues related to trade and environment, the outcome of the plurilateral negotiations on digital issues needs the endorsement of the entire WTO membership. As this is unlikely to be forthcoming, the developed countries are seeking to make fundamental changes to the WTO institutional architecture to push the ambitious agenda of their commercial entities and achieve their economic objectives. What are the developed countries seeking to achieve through WTO reform? We discuss this question in the next section.

7. What is sought to be attempted through WTO reform

Despite enjoying huge economic and political clout at the negotiating table, the developed countries have been constrained by some of the WTO rules from securing their negotiating objectives. In order to circumvent this problem, an attempt is sought to be made to modify some of the fundamental rules of the WTO through an initiative called WTO reform. The 12th Ministerial Conference of the WTO, held in June this year, has provided a mandate for launching an ambitious work plan for reforming the WTO. The contours of WTO reform remain to be decided. However, we can get an inkling of the thinking of the developed countries on this issue from two documents of the EU which are available in the public domain.9

The EU has identified the WTO’s tradition of decision-making by consensus as an impediment to concluding negotiations among 164 members. It is pushing for amending the WTO rules so that agreements reached among a limited number of WTO members – technically called plurilateral agreements – can be integrated into the rulebook even without the endorsement of the entire membership. This would facilitate agreements on the digital economy and environment-related issues getting integrated into the WTO. The EU’s vision would also change the member-driven character of the WTO by expanding the role of the WTO secretariat in different aspects and making it a more active player, including in negotiations. Further, it seeks to provide a formal role for businesses and the private sector in WTO processes, through a consultative or advisory committee.

If the EU’s vision of WTO reform prevails, the developed countries would acquire almost unfettered rights to decide the issues on which to initiate negotiations and conclude final deals, thereby further marginalising the voice and role of developing countries. In the absence of decision-making by consensus, developing countries would find it almost impossible to pursue issues of their interest in the negotiations. Developing countries already confront formidable odds and power asymmetry at the WTO. Active involvement of business interests of the developed countries in WTO processes and expanding the role of the WTO secretariat would further deepen the power asymmetry between the developed and developing countries.

8. Conclusions and way forward

Overall, the vision of the developed countries in respect of WTO reform would make the WTO an instrument for unabashedly promoting their commercial interests, particularly in sunrise sectors such as the digital economy and climate-friendly products, without any meaningful concern for the interests of the developing countries, who constitute the large majority of its membership. Compelling most developing countries to adhere to the same set of rules as those required to be followed by the developed countries would further stunt their prospects of economic growth. Most developing countries will likely be staring at a balance-of-payments and foreign exchange crisis if they become overwhelmingly dependent on imports of products in the emerging and buoyant sectors. Reordering of the global trading system through reform of the WTO would destroy the basic principles of equity and differentiation of development levels.

How should the developing countries respond to the scenario unfolding at the WTO? First, they need to join the dots and look at the big picture emerging from various developments at the WTO. Second, they must carefully reflect on how their prospects of economic development and growth would be adversely impacted by the various initiatives led by the developed countries. They must not be misled by the narrative sought to be created by the developed countries and their cheerleaders in the academic world regarding the plurilateral initiatives as well as WTO reform. Developing countries need to undertake detailed technical studies to comprehend the impact of these initiatives. Third, they must join hands and form coalitions with like-minded developing countries to resist the designs of the developed countries to further tilt the multilateral trading system against their interests. Failure to follow these suggestions could result in the reordered multilateral trading system spelling considerable disaster for many developing countries.                          

Abhijit Das is an international trade expert. The views expressed here are personal.

Notes

1.         This general point is forcefully reflected in the receipts for the use of intellectual property by other countries. In 1995, the year when the WTO was established, the European Union, Japan, Switzerland and the United States collectively accounted for 83% of the global cross-border receipts, which increased to 85% in 2015. On the other hand, the combined share of Argentina, Brazil, India and Indonesia remained less than 0.5% during this 20-year period, when the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights has been under implementation. These figures are based on the World Bank’s World Development Indicators database.

2.         An important example to note is the significant loss in share of domestic producers in India after it removed tariffs on IT hardware. For a detailed analysis, see Das, Abhijit, Kallummal, M, and Banerjee, S. 2020. ‘Performance of Computer, Electronics and Optical products in post-ITA phase: Some insights from OECD TiVA database’. Centre for WTO Studies, Policy Brief no. 3.

3.         See, for example, Das, Bhagirath L. 1998. The WTO Agreements: Deficiencies, Imbalances and Required Changes. Zed Books (London) and Third World Network (Penang).

4.         WTO document WT/MIN(01)/DEC/1 dated 20 November 2001.

5.         Two coalitions in the agriculture negotiations are worth mentioning. The G20, a coalition led by Brazil and India, targeted the farm subsidies of the developed countries and sought equitable agriculture reform through the negotiations. The G33, a coalition led by Indonesia, India and the Philippines, sought to protect food security and farm livelihoods in developing countries. 

6.         Article XXXVI:8 of GATT 1994.

7.         Submission by the US titled ‘An undifferentiated WTO: Self-declared development status risks institutional irrelevance’. WTO document WT/GC/W/757 dated 16 January 2019.

8.         WTO document WT/MIN(21)/6/Rev.2 dated 14 December 2021.

9.         The EU’s concept paper on ‘WTO Modernisation’ dated 18 September 2018; and the EU’s ‘Trade Policy Review – An Open, Sustainable and Assertive Trade Policy’ dated 18 February 2021. 

*Third World Resurgence No. 352/353, 2022, pp 33-37