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Info Service on UN Sustainable Development (Jul23/08) Geneva, 26 Jul (D. Ravi Kanth) — As industrialized countries, particularly the United States and the European Union, are spending hundreds of billions of dollars in subsidies to pursue their industrialization policies allegedly in violation of the WTO rules, the African Group has called for “policy space for industrial development”, making a strong case for “re-balancing” the trade rules to promote industrialization and to address emerging challenges such as climate change, the concentration of production and digital industrialization, said people familiar with the development. At the request of the European Union and the African Group, the chair of the WTO’s General Council, Ambassador Athaliah Lesiba Molokomme of Botswana, has apparently decided to convene an informal meeting on 26 September to discuss the two different forms of industrialization policies as proposed by the EU, on the one hand, and the African Group, on the other. Although the EU is yet to spell out the contours of its proposed industrial policies aimed at the “green” and semiconductor industries, the African Group has already circulated a proposal (WT/GC/W/880) in which it argued comprehensively that “subsidies are a critical instrument in the toolbox that national governments use to address market failures and achieve a variety of policy goals.” Many developing countries, including Indonesia, strongly supported the African Group’s proposal. Commenting on the African Group’s proposal, Indonesia highlighted several elements in the proposal that “strikes a chord with us, as a fellow developing country.” First, the role and importance of the transfer of technology to address the technology gap and the need for the WTO to facilitate and improve technology transfer to developing countries. Second, the role of local content requirements to boost domestic production, particularly to a weakened or infant industry base, as developing countries historically have been forced to engage in low value-added activities and consume much of the higher valued products that are derived from raw materials. Therefore, said Indonesia, “a true leveling playing field can only be achievable if developing countries and LDCs are given the opportunity to shift into the creation of a local production platform focussing on higher value-added products in the domestic level.” According to the African Group’s proposal, while the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM) sets out multilateral rules to discipline the type and scope of allowable subsidies or limits within which subsidies may be provided by a Member, it also “regulates the actions that members can take to counter the effects of subsidies which can be enforced either through the WTO dispute settlement mechanism or through the imposition of countervailing duties or measures.” Citing Article 27 of the ASCM, which recognizes that subsidies may play a role in economic development of developing country Members and agreed on provisions on Special and Differential Treatment of Developing Country Members, it said “some of these flexibilities had transitional periods and have since expired.” At a time when “the world economy is confronted with compounding global challenges today, including the on- going effects of the COVID-19 pandemic, climate crisis and economic consequences of geopolitical tensions, global food and energy crises, causing the cost-of-living crisis and rising debt burdens in many countries,” the African Group said it “is important to consider how flexibilities, not only in the context of S&D [special and differential treatment] as provided for in Article 27, can be availed to developing countries to provide them with the requisite tools to respond to the polycrisis.” The African Group argued persuasively that “subsidies in developing countries aimed at achieving “legitimate development goals”, including support for regional growth, technology research and development, production diversification, and development and implementation of environmentally sound methods of production should not have to face countervailing measures or other actions from other governments.” Sadly, as the African Group pointed out, “developing countries have been the main targets of countervailing measures by developed economies.” Therefore, it called “for flexibilities to be granted to developing countries so as to provide requisite flexibilities to developing countries to respond to the polycrisis and to drive their structural transformation, industrial development and diversification.” “The ASCM disciplines need to be recalibrated and re-balanced to infuse certainty and equity in the multilateral trading system.” The African Group provided “a non-exhaustive list of issues that can be considered by Members to re-balance trade rules to enable industrialization within the framework of the ASCM to enable sustainable economic transformation in developing countries and in particular Africa.” According to the African Group, “the scale of the polycrisis confronting the global economy, inequality and disparities in levels of development of countries and regions, highly concentrated patterns of production, and the lack of sufficiently diversified economies in developing countries calls for urgent action at a multilateral level to devise rules that are fit for purpose.” In the context of this “polycrisis”, said the African Group, “Governments, most notably in developed economies are implementing industrial policies as a viable option for accelerating sustainable economic growth as a means of advancing national economic priorities, including the de-risking of supply chains.” For the African Group, according to its proposal, “Industrialisation is an indispensable factor in the development process and is critical in the process of the enhancement and expansion of productive capacities to achieve economic diversification. Many developing countries struggle to diversify their economies and it is important to explore how WTO rules can facilitate the industrialisation efforts of Members.” It said that “Africa’s growth trajectory is limited by its dependence on production and exports of agricultural and extractive primary commodities which leaves it vulnerable to global shocks.” The African countries “seeking to develop their economies from a relatively much lower base are also contending with ambitious carbon reduction and mitigation targets, in line with their nationally determined contributions (NDCs) as negotiated under the Paris Agreement.” Further, “the increasing adoption of decarbonization targets with extraterritorial application imposed through trade measures by their main export markets also underscores the urgency to diversify their economies and integrate into environmentally-friendly and high-value manufacturing value chains as key producers and suppliers of products in the green economy, e.g. electric vehicles and their components such as energy storage systems, domestic solar and wind energy products, etc,” the African Group said in its proposal. The African Group quoted the United Nations Conference on Trade and Development’s 2023 Technology and Innovation Report, which says that “Developing countries now have opportunities to catch up, reduce poverty, and at the same time help tackle climate change and set the world on a more sustainable course”. Significantly, the UNCTAD report highlights and acknowledges “the critical role of WTO trade rules towards this ideal, such as the disciplines under the ASCM, including local content requirements and public procurement and the need for their review to bring them in sync with the Paris Agreement.” Given the critical role played by research and development (R&D) in industrialisation, including promoting green mobility and, with that, renewable energy solutions, as well as structural transformation into new, or more sustainable industrial activities, the African Group said the “importance of public-private cooperation in R&D to enhance research activities and translate research outcomes into a production plan for commercial use is well- documented.” Against the backdrop of poor funding by private companies in the African countries, the proposal said that “the constraints imposed by disciplines in the ASCM can hamper public sector support for R&D purposes that is necessary for developing countries to develop their nascent industries, keep up with the pace of technological advances at competitive levels, and undermine efforts to harness or beneficiate their natural resources to move up production value chains or decarbonize existing and future production capacities.” Also, it said “the expiry of the carve-outs contained in Article 8 of the ASCM which allowed for non-actionable subsidies of up to 75 percent of industrial research or no more than 20 percent of costs of adaptation to new environmental requirements or regulations, unfortunately, stifles this ambition to industrialize, whilst also placing existing exports at risk of non-compliance with increasingly stringent sustainability standards.” The African Group said, “the prohibitions contained in Article 3 of the ASCM on local content requirements presents a further constraint to the ability of developing countries to structurally transform and diversify their productive sectors.” “Even with the flexibilities provided for in Article 27.3 of the ASCM which have since lapsed on 31 December 1999 and 31 December 2002, the uncertainties with respect to this provision in view of the restriction in the Agreement on Trade-Related Investment Measures (TRIMS) on the domestic content requirement created ambiguity and uncertainty on its practical applicability,” the African Group argued. The African Group identified the following issues to pursue: * The criteria of determining prohibition of paragraph 1(a) of Article 3 under the terms of paragraph 2(a) of Article 27 shall be revised with a view to, among others: i. Updating the threshold of GNP per capita of $1,000 per annum, and ensuring the re-inclusion of a Member when its GNP per capita falls back below the agreed threshold; ii. Incorporating additional objective criteria to expand the reach of the provision such as the level of export diversification, the global share of exports, etc.; and iii. Taking account of regional investment needs to promote regional integration and achieve desired economies of scale. * The prohibition of paragraph 1(b) of Article 3 shall not apply to developing country Members and least developed country Members provided the use of domestic goods does not exceed the threshold to be agreed by Members. In the case of actionable subsidies, the African Group said “the threshold for the termination of countervailing duty investigation of products originating in a developing country Member shall be increased to x percent of its value calculated on a per unit basis; The standard for negligibility should also be revised to be based on a market penetration test, rather than on imports as a percentage of total imports test, i.e. if exports from an individual developing country is less than x% of the market where goods are being exported to, there should be no cumulation with imports from other countries.” +
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