South firmly rejects US proposal on S&DT

Dozens of developing countries have opposed a US proposal to limit the number of countries that can take recourse to flexibilities in WTO rules, stressing that such dispensations are a right of developing member states and are needed to bridge the development gap with the rich nations.

by D. Ravi Kanth

GENEVA: More than 50 developing and least-developed countries on 16 October rejected a US proposal for bringing about differentiation/graduation among developing countries in availing of special and differential treatment (S&DT) in current and future trade negotiations at the World Trade Organization, trade envoys told the South-North Development Monitor (SUNS).

At an extended WTO General Council meeting, India, China, members of the African Group, Bolivia, Cambodia, Cuba, Laos, Oman, Pakistan and Venezuela issued a powerful statement asserting that S&DT is an unconditional right in WTO rules and must continue uninterrupted.

On behalf of the 52 countries, India said that the developing countries “must be allowed to make their own assessments regarding their developing country status.”

The existing S&DT provisions must be upheld and S&DT must be provided in current and future negotiations, the countries demanded.

Denouncing the concerted US “attempt to divide developing countries,” India said “many more members have expressed support and are seeking capital clearance to co-sponsor this paper.”

US proposal

The submission by the 52 countries came a day after US Ambassador to the WTO Dennis Shea reiterated the US proposal made in February and threatened major developing countries that if they choose not to forgo S&DT in current and future trade negotiations, then the US “shall no longer treat as a developing country for the purposes of the WTO any self-declared developing country Member that, in the USTR [US Trade Representative]'s judgement, can inappropriately seek S&DT in current and future WTO negotiations.”

“In addition,” Shea had told the General Council on 15 October, “the USTR shall not support any such country's application for membership in the OECD [Organization for Economic Cooperation and Development].”

He also suggested that the USTR would publish the list of these countries on 24 October.

The US also underlined its proposed four-point criteria for identifying developing countries that should not avail themselves of S&DT:

•   a WTO member that is a member of the OECD, or a WTO member that has begun the accession process to the OECD;

•   a WTO member that is a member of the G20;

•   a WTO member that is designated as a “high income” country by the World Bank; or

•   a WTO member that accounts for no less than 0.5% of global merchandise trade.

Shea said “many share our goal of reserving blanket S&DT provisions for those Members that are the relatively less developed of the over 100 Members claiming developing country status. Many have confirmed that the current situation does not lead to equitable outcomes.”

He also pointed to a US Presidential memorandum on S&DT issued in July (see TWE No. 684/85), listing the following points:

•   The President’s memorandum does not instruct the USTR to ask any member to change its self-declared development status.

•   The memorandum does not instruct the USTR to ask any member to forgo S&DT in existing WTO agreements.

•   Nothing in the memorandum precludes a member from negotiating the flexibilities it needs in a WTO negotiation. All members negotiate their specific needs in every negotiation. The US expects any country that forgoes blanket S&DT provisions in any future WTO agreement would negotiate its needs into the agreement text.

•   Several members have asked what action the USTR will take to "no longer treat as a developing country for the purposes of the WTO any self-declared developing Member that, in the USTR’s judgement, can inappropriately seek S&DT in current and future WTO negotiations.” Regarding this instruction, and as directed by the memorandum, the USTR is consulting with the interagency Trade Policy Staff Committee.

Right and principle

In the face of the threat by the US administration, India's Ambassador to the WTO J.S. Deepak, who introduced the 52-country joint statement at the General Council on 16 October, said S&DT “is a right of the developing countries, and is as much treaty-embedded as the other core principles of our rule-based multilateral system, such as the MFN and National Treatment.”

The developing countries and least-developed countries (LDCs) must “continue to benefit from their right to S&DT in WTO rules and negotiations,” as long as their “development challenges and the differences in levels of development persist”, he said.

Without naming the US, the Indian trade envoy said “any unilateral attack on S&DT is an onslaught on the very tenets of multilateralism that WTO seeks to protect. This will cause lasting and systemic damage to the multilateral trading system.”

The underlying “rationale behind S&DT is simple and obvious – it recognizes the enormous difference in the levels of development between different Members of the WTO, and allows developing Members space to formulate their domestic trade policy in a way that helps them to reduce poverty, generate employment and integrate meaningfully into the global trading system,” Deepak argued.

Many developing countries and LDCs would not have signed and ratified the Marrakesh Agreement Establishing the WTO without the insurance of the S&DT provisions, he emphasized.

Therefore, it would be a gross violation to deprive the developing countries and LDCs “their rightful policy space in future agreements, a policy space that has been enjoyed by developed Members in their process of structural transformation and economic growth”.

Further, Deepak maintained, attempts to deny S&DT to developing countries and LDCs would amount to “a gross violation of the basic tenets of equity and justice and would strike at the very legitimacy of the rules-based system”.

In effect, the ongoing attempts to deny S&DT, he said, “would compound the wrong which has resulted from the non-completion of the Doha Work Programme which sought to mainstream development in the multilateral trading system and make provisions of the Uruguay Round Agreements more precise, operational and enforceable.”

The Indian envoy urged the US and other developed countries to “be cognizant that developing economies themselves, and they alone, have adequate knowledge of their local conditions to decide whether they should be categorized as developing Members to avail S&DT or not.”

“There is no ‘one size fits all’ definition of development, and any attempts at differentiating between developing Members based on arbitrary and selective criteria must be avoided at all costs,” he maintained.

The US Presidential memorandum issued in July as well as the US proposal made at the WTO in February “seek to reduce special and differential treatment from a treaty-embedded right available to all developing Members including LDCs, into a plea for mercy, based on arbitrary and changing parameters,” charged Deepak.

Although only four out of the 52 signatories to the statement are currently targeted, he cautioned that “there is no guarantee that other developing Members would not be targeted for graduation on the basis of a growing set of conditions, in the near future.”

“The large developing economies are sought to be graduated in the first instance, so that the collective negotiating ability of the South is weakened and smaller developing countries are saddled with the burden of proving, on a case-to-case basis, that they need S&DT, sector by sector, product by product and maybe line by line as is happening in the case of accessions,” he warned.

Commenting on the widening gaps between developing and developed countries, he said “catching-up is a challenge because of the non-level playing field and structural obstacles faced by developing countries.” Therefore, “it is essential to preserve the S&DT for allowing developing Members the space to formulate their trade policies in a way that helps them to integrate meaningfully into the global trading system.”

Moreover, “it is a necessary condition for inclusive development and for taking everybody along,” the Indian envoy maintained.

The 52 countries want to “reiterate that S&DT is not derailing the negotiations”, he said, suggesting that the root cause for the inability to conclude the Doha Work Programme negotiations is “a lack of attention to mandates.”

“Any attempt to water down the core principle of S&DT would be a recipe for intractable deadlock at the WTO,” Deepak warned, insisting that “it is in the interest of the entire membership to avoid this situation.”

He summarized the key points of his submission as follows:

(i) S&DT for developing countries, including LDCs, is a right for which they have made payments in the form of obligations in the Uruguay Round agreements like the Agreement on Agriculture and the TRIPS Agreement.

(ii) It is part of the basic structure of the multilateral trading system, and abandonment of S&DT would imply abandoning a core principle of the WTO Agreement.

(iii) The US is using arbitrary parameters, many of them unrelated to development, together with unilateral enforcement, to target the members and to divide developing countries.

While some developing members may have made progress in overall or per capita gross domestic product (GDP), huge gaps between developed and developing countries remain and have in many cases widened. A country like India with a per capita income of about $2,000, and home to 35% of the global poor, cannot be placed in the same development category as the US with a per capita GDP of more than $70,000.

(iv) 52 developing members, representing more than 75% of the people of Africa and Asia, across the development spectrum, have rejected the US narrative as unacceptable. Their voice cannot be ignored.

(v) Finally, pursuing the course of action outlined in the US Presidential memorandum will result in a complete breakdown of trust in the WTO, raise unilateralism to a new height and jeopardize current and future negotiations, including those on fisheries subsidy disciplines.

“Intrinsically incorrect”

In his intervention at the General Council meeting, China’s Ambassador to the WTO Zhang Xiangchen said “resorting to unilateral coercion is intrinsically incorrect”.

“The current serious crisis for the multilateral trading system is by no means caused by special and differential treatment,” he said. “As a matter of fact, the historical bad debt of special and differential treatment is up to our neck, causing severely imbalanced status of Members' rights and obligations.”

“Hence, without an equitable and sufficient fix to this problem in current and future trade negotiations, the chance to reach an agreement would be fairly slim,” the Chinese envoy cautioned.

Neither is S&DT a free lunch for developing countries, “nor is it a shield not to make any contribution to the multilateral trading system”, Zhang argued.

He rejected a case-by-case approach, pointing out that China is facing various challenges and difficulties and that it “will not make commitments beyond our capabilities, nor will we give up our legitimate and institutional rights as a developing member.”

“For future special and differential treatment in specific negotiations, if it is needed, indeed, we will be honest to speak out and spare no efforts, trying to get it through negotiations; if not, we will, without any hesitation, leave the chance to other developing Members who really need it,” he said.

In her intervention at the General Council meeting, South African Ambassador to the WTO Xolelwa Mlumbi-Peter categorically said her country will “not waive its right to self-declare its development status and to S&DT”.

Because of its earlier experience of taking the same commitments as developed countries under the previous Uruguay Round, South Africa had to suffer “premature deindustrialization of our economy”, she said.

“Therefore, any discourse on development should have the objective of making the WTO more equitable, balanced, development orientated, inclusive and transparent in decision making,” she added.

She emphasized that “S&DT is a treaty-embedded right” and “a fundamental principle in GATT [General Agreement on Tariffs and Trade] and forms an integral part of WTO agreements, including the principle of self-declared development status.”

South Africa will not support “attempts to reverse the earlier gains made by developing countries in the GATT, achieved through long and hard negotiations which resulted in Part IV of the GATT recognizing differences between developed and developing countries and subsequently captured in WTO agreements”, Mlumbi-Peter said.

She cited several indicators to show the continued "persistence of the enormous development divide between the developing and developed Members of the WTO" in levels of economic development, industrial structure and competitiveness, such as GDP per capita, poverty levels, levels of undernourishment, production and employment in the agriculture sector, trade in services, receipts from intellectual property rights, share of trade in value-added under global value chains, energy use per capita, financial infrastructure, research and development (R&D) capacity, company profits, and a range of institutional and capacity constraints, among others.

Despite significant progress achieved by developing members since the creation of the WTO, “old divides have not been bridged and, in some areas, they have even widened, while new divides, such as those in the digital and technological spheres, are becoming more pronounced,” Mlumbi-Peter argued.

Consequently, notwithstanding the progress achieved, “developing countries have not come anywhere near catching up with developed Members,” she maintained.

“All developing countries are entitled to S&DT and cannot be excluded upfront from claiming the flexibilities that they are entitled to even before negotiations begin,” she emphasized.

South Africa, she said, will not support “a case-by-case approach” as advanced by the US and several other developed countries.

“In conclusion,” said Mlumbi-Peter, “we want to underscore developing countries’ unconditional right to S&DT” and “emphasize the importance of the principle of self-declaration and that existing S&DT provisions must be upheld and S&DT must be provided in current and future negotiations.”

She urged the developed and other countries to deliver "on the agreed mandate of making S&DT more precise, effective and operational."

"This is the only way of making trade inclusive and to ensure effective integration of developing countries in global trade," she maintained.

Jamaica, on behalf of the Africa, Caribbean and Pacific (ACP) Group of countries, and Chad, on behalf of the LDCs, strongly endorsed the joint statement by the 52 countries.

The US made a brief intervention at the meeting on 16 October, pointing a finger at China's need for S&DT. But other developed countries remained silent at the meeting, several trade envoys told SUNS. (SUNS8999/9000)                  

Third World Economics, Issue No. 688, 1-15 May 2019, p2-4