TWN Info Service on WTO and Trade Issues (Sept20/07)
4 September 2020
Third World Network

South urged to pursue “inclusive and developmental” WTO reforms
Published in SUNS #9184 dated 4 September 2020

Geneva, 3 Sep (D. Ravi Kanth) – The former South African trade minister Rob Davies on 2 September urged the developing and least-developed countries to intensify their efforts for “inclusive and developmental” reforms at the World Trade Organization to counter the highly “skewed” reforms being advanced by the United States and other industrialized countries.

The developing countries and LDCs at the WTO must safeguard the special and differential treatment (S&DT) at any cost by pursuing their own agenda of improvements for the effective implementation of S&DT as set out in the G90 proposal that was submitted at the WTO’s eleventh ministerial conference (MC11) in Buenos Aires in December 2017, he said.

Speaking at a webinar meeting on 2 September on “Strengthening the Multilateral Trading System to Promote Inclusivity and Development”, hosted jointly by Prof Abhijit Das of the Centre for WTO Studies in New Delhi along with the Geneva-based South Centre and Third World Network, Davies said that the developing countries must fiercely resist the “unfair” reforms being advanced by the United States and other industrialized countries that will further “skew imbalances even more” at the WTO.

He cautioned the developing countries and the LDCs that if they agree to the proposed “reform(s)” as advanced by the industrialized countries, in any one institution, it will impact them in other areas outside the WTO, including in the climate change negotiations, particularly on their common but differentiated responsibilities.

Davies, who had served South Africa over the past 20 years, covered the many issues that developing countries had faced from the Uruguay Round to the current existential crisis at the WTO.

In his book “The Politics of Trade in the Era of Hyperglobalization – A Southern African Perspective,” Davies highlighted the need for developing countries to join forces in confronting the multi-pronged challenges at this juncture.

Davies said that the proposed WTO reforms are linked to the Appellate Body (AB) crisis and developing countries are being subtly told that they have to accept reforms (as a sort of payment for allowing the AB to continue).

He suggested in his book that outcomes in trade negotiations reflect “power” which depends on a number of factors such as the size of the economy, the presence of a country in the international trade, the ability of a country to mobilize its “bureaucracy” of trade diplomats in the negotiating processes, and also on the ability of a country to drive the narrative process backed by a series of think tanks.

“Trade negotiations, in short, have been driven by short-term self-interest, reflect power relations and are characterized by relativism,” Davies argued in his book.

“These realities in the era of globalization and neoliberalism, contributed to growing unevenness and increasing inequality both within and between countries,” he said.

Consequently, “the new trade order driven by these processes did, however, have another result, namely, the emergence of China first as a major exporter of manufactured products and later as a serious innovator and competitor in the technologies of the 4th Industrial Revolution,” Davies argued.

At the webinar meeting, he criticized the Trump administration for its “bi-polar” approach in which Washington seems solely interested in capturing all the benefits for itself while denying the same benefits to other countries.

On 2 September, the US questioned Russia at the World Trade Organization as to why Moscow is pursuing “import substitution policies” at a time when Washington is aggressively pursuing import substitution policies in its own industrial sector.

Davies drew attention to the seemingly self-serving policies being adopted by the US, saying that the “implementation of such (unfair) reforms would further curtail the ability of the developing world to bring about structural transformation, including diversifying and moving to higher value-added production.”

Davies said the developing countries need “policy space” for nurturing their nascent industries, pointing out that the US demand for full reciprocity in its bilateral trade negotiations with Kenya would be “restrictive” to exclude imports that would compete with nascent industries.

The developing countries need to pursue a well-planned “Digital Industrial Policy” that would bring about skills development, digital infrastructure, development of national capabilities, setting of developmental conditions, regulation against monopoly conduct and abuse of data and data sovereignty.

He said the current WTO moratorium on customs duties on digital transmissions is a vital issue, suggesting that it impedes digital industrialization.

To a question from Indonesia’s trade envoy Ambassador Syamsul Bahri Siregar on how to safeguard the special and differential treatment as well as how to ensure the continuation of the Appellate Body, Davies said the “AB (Appellate Body) issue (is) not a standalone, but a gateway to other issues.”

The former South African trade minister recalled the statement of the US Trade Representative (USTR) Ambassador Robert Lighthizer before the US Senate Committee that “I know of no other way to push for WTO reform than to use the only leverage available to the United States by blocking the appointment of Appellate Body members.”

Ambassador Lighthizer had also said that Washington has “broken with the orthodoxies of free trade religion at times” and will temper pursuit of trade liberalisation with the crafting of a “balanced worker-focused trade policy” that will include seeking to reverse de-industrialization through trade agreements that contain strong provisions against “wage-driven outsourcing” and “higher levels of local content in ROO (rules of origin),” the former South African trade minister reminded the participants.

The US-proposed reforms, according to the USTR Ambassador Lighthizer, include: (1) need to agree on baseline tariff rates that apply to all, with minimal exceptions; (2) need to end the free trade agreement land grab; (3) countries with large or advanced economies (China, India, Indonesia, South Africa, and Argentina among others) should not have access to special and differential treatment; (4) WTO needs new rules to stop economic distortions that flow from China’s state capitalism (Washington is currently one of the biggest “state capitalists” with huge investments in the pharmaceutical sector to produce generic drugs); and (5) the WTO’s two-stage dispute settlement process be replaced with commercial arbitration, “in which ad hoc tribunals are impaneled and resolve particular disputes in an expeditious manner.”

Speaking to the CNN on 2 September, Roberto Azevedo, the former WTO director-general and now the second- highest executive in PepsiCo Inc, suggested that without reforms (advanced by the US) the WTO may not survive.

Referring to the US-China trade war, Davies said at the webinar that China’s rise as a major industrial power following huge investments in development of technologies of the Fourth Industrial Revolution has become an “eyesore” for the US and other industrialized countries.

“China’s competitive challenge has changed the narrative from China as poster child of the way globalization can raise millions out of poverty to China as a “cheat” and threat,” suggesting that “China’s competitive challenge leads to move from “tariff tantrums to technology turbulence” (UNCTAD TDR 2019) – in an increasingly evident attempt to assert “mastery” over digital technology and block China’s competitive challenge.”

He said the invocation of “national security” to justify exclusion of Chinese telecom giant Huawei from rollout of 5G networks (where it is very competitive) is an ominous development for developing countries, suggesting that China is not the only target but that other major developing countries may face the same fate.

Davies cautioned the developing countries about the proposed disciplines on state-owned companies and industrial subsidies, and limits on localization being advanced by the US, the European Union, and Japan as well as tighter rules on intellectual property that would limit technology transfer and adaptive innovation.

As part of the “Geneva Principles” that he prepared for discussion, Davies said:

* Global rules should be calibrated towards the overarching goals of social and economic stability, shared prosperity, and environmental sustainability and be protected against capture by the most powerful players;

* States share common but differentiated responsibilities in a multilateral system built to advance global public goods and protect the global commons;

* The right of states to policy space to pursue national development strategies should be enshrined in global rules.

Davies said that developing countries must work towards a “Global Green New Deal – investment in industrial policy”, emphasizing that the need of the hour is “a very different kind of Reform of the MTS – Reform for Development and Inclusivity.”

This is more so in the context of the unfolding “Great Lockdown Recession” where developing countries must defend multilateralism based on reform for development and inclusivity.

He said that any “V-shaped recovery” in the global economy is unlikely, suggesting that a quick return to “normal” after the health emergency is the “least likely scenario.”

Davies said several sectors in the modern economy such as small businesses, tourism and travel might not survive due to the Covid-19 health crisis.