New Explosion on Special and Differential Treatment: Is it Time for a Rethink?
The foundation of World Trade Organization (‘WTO’) is cooperation and not competition. The basis of this premise arises from the fact that competition among the countries with different levels of socio-economic development will be an unfair competition.[1] It is broadly recognized that the “one-size-fits-all” approach, implicit in the attempt to level the playing field does not match the reality.[2] The deviation from this approach forms the basis of providing special treatment to some countries. Attention must be drawn towards the fact that all countries cannot be divided into two blocks. Taking into account the differences between the countries, a common special treatment is yet another example of “one-size-fits-all” approach. Therefore, it is pertinent that a sector-wise and an industry-wise approach is adopted to address the differences amongst countries. This article elaborates on the special and differential treatment (‘S&DT’) under WTO and the rationale behind it. It further discusses the recent attack on S&DT by the United States of America (‘US’) and the way forward.
On a consideration of several factors, economic and social, the countries are pigeonholed as developed, developing and least developed countries (‘LDCs’). While some international organizations follow criteria like Gross National Income[3] or Human Development Index[4] for this classification, WTO sticks to the self-declaration approach. There is no definition of a developed or developing country under WTO. Countries declare themselves to be developing which is also known as self-declaration of development status. Other members, however, are at liberty to challenge such a declaration.[5] Graduation from the status of developing country refers to the process through which a country obtains the status of a developed one, thereby shifting from one pigeonhole to another. The only available method of graduation under WTO at this point is self-declaration. Special and differential treatment (‘S&DT’) is one of the tools used for creating a level playing field between the countries with disparities in their level of development. The S&DT under WTO is inscribed in around 150 provisions across the agreements contained therein.[6] The provisions are generally classified into three types:[7] (i) improved access to the markets of developed countries, (ii) reducing the cost imposed by allowing delays or partial compliance and (iii) permission to follow policies that are otherwise inconsistent with WTO.[8]
By their very nature, developing countries require more control, intervention and ‘policy space’ than developed countries. Developing countries already stand at a disadvantageous position and the non-reciprocal treatment by the developed ones helps to bring them at par with the producers in developed countries. It can also be argued that if free trade is the aim and protectionism is a hindrance, the least that can be done to further development is to encourage it for those who are in need, but are too small to raise any fear of protectionism. It is appropriate to consider that some of the developmental problems can be solved by trade while others, like structural issues, cannot be. Another very popular notion floated by the developed countries for S&DT is that developing countries need assistance to open their markets and to integrate with the global economy.[9] This argument essentially pushes for integration under the façade of advocating for S&DT but does nothing to contribute to development.[10]
Development has remained the cornerstone of the negotiations since the inception of WTO. During the 10-year Doha Development Agenda (‘DDA’) negotiations[11], there had been a major shift in the attitude of developed countries towards emerging trade powers, with respect to S&DT. While S&DT has been attacked in the past, recent developments of this attack are perplexing. US mooted a proposal[12] condemning the S&DT regime under WTO, specifically challenging the mode of self-declaration of development status. India, China and other countries responded to the proposal by justifying the current practice and emphasizing on the need for better S&DT provisions[13]. However, Trump administration has issued a memorandum[14] for removal of S&DT for countries fulfilling the criteria set out therein.
According to the proposal, members have made significant strides in pursuing developmental aims since the inception of WTO. The ‘rule based multilateral trading system’ that WTO is, imposes higher standards on only certain developed countries and few rules apply to the self-declared developing countries. The communication on behalf of developing countries argues that provisions on S&DT are mostly in the form of ‘best endeavour clauses’, with the exception of enabling clause.[15] Best endeavour clauses are those provisions which provide for expected behaviour or cooperation from developed countries towards the developing countries and LDCs. Under WTO, they are mostly in the nature of moral obligations rather than legal obligations.[16]
This communication also emphasises on various instances of reversed S&DT provisions in the WTO regime where developed countries enjoy a preferential treatment over the developing countries and LDCs. Reversed S&DT is found in the Agreement on Agriculture, where developed countries have managed to obtain a country specific carve out from the application of certain provisions, leading to long lasting imbalances in the multilateral trading system. Under Agreement on Subsidies and Countervailing Measures (ASCM), the developed countries ensured that subsidies for research and development remained non-actionable as then they were widely used by them. The TRIPS Agreement is also criticized as being grossly imbalanced for being pro-right-holders and neglecting the need of developing countries for policy space. The communication relies on self-declaration that has found its legitimacy since GATT, 1947 and has become a custom for WTO to follow. It is also argued that trade policy liberalization cannot be the sole decisive factor and factors like institutional reforms, structural transformation, technological upgrading and strengthening production capacity are equally crucial for economic development.[17]
US has further given a Draft General Council Decision[18] wherein it advocates for certain criteria for graduation- becoming a member of OECD or being in the process of accession, becoming a G-20 country, being classified as a “high income” country by World Bank, or being a Member not accounting for less than 0.5% of the global merchandise trade. However, this draft does not offer any relief to the LDCs. It also provides that if this Decision is consented to in the General Council, it shall not hinder reaching an agreement in sector specific negotiation through which countries who are developing according to the mentioned criteria may also be ineligible for S&DT. Whilst the concerns pointed out by US may appear to be valid, the progress of the upper range developing countries in certain sectors and the burdening losses in others cannot be ignored. Even if a reform of S&DT is desired, achieving consensus on the definition of ‘development’ is difficult.[19] While the definition of LDCs has been taken from the United Nations, it contains an element of self-selection in terms of the policies that a country put its focus on. Graduation is not a very convincing suggestion as the proposals will be again based on a controversial criteria. The smaller countries generally put forward their interest in negotiations through the upper cream of developing countries. Graduation of these countries will only further handicap the negotiations at WTO.
The rest of the Draft General Council Decision is highly controversial. However, the sector specific approach seems better for reforming S&DT. A sector specific negotiation will take into account the capacity of a country in a particular sector, thus determining S&DT on a relatively objective and acceptable criteria. Some of the factors which may differ from sector to sector include policy structure, level of domestic production, demand, exports, exports subsidies, level of dependency on imports, employment creation by the sector, etc. It is germane to analyse the interplay of these factors in each sector and determine S&DT not only country wise but also sector wise. The level of development in the developing countries and LDCs continues to remain at disparity, especially sector-wise. It is, therefore, advisable that a sector-wise S&DT may be considered by Members.
President Trump has signed a memorandum directing United States Trade Representative (‘USTR’) to not treat any WTO Member as a developing country that, in its view, has improperly declared itself as a developing country and is inappropriately seeking the benefits.[20] This step will be a follow up to USTR’s efforts to secure changes at WTO to prevent self-declared countries from inappropriately benefitting themselves of the flexibilities available. If, within 90 days of the issuance of Memorandum, no substantial progress has been made towards securing the required changes, the Memorandum will come into effect. In a consensus driven organization like WTO and with the extended spectrum of interest at stake, it will be a wonder if any consensus could be arrived at within the duration of 90 days.
It can be said that while the current S&DT regime under WTO might not be satisfactory for the developed countries, it has not been completely beneficial for the developing countries too. The present regime does not take into account the multitude of differences between developing countries themselves. In this scenario, providing one treatment to all developing countries does not ensure equitable treatment of countries. The key for undertaking an even-handed approach lies in a system of sector wise and country wise evaluation for the allocation of S&DT. The unilateral approach that US has been using as a weapon to get the desired outcomes at WTO lately has been partially successful in slow loss of faith on multilateral trading regime. Instead of such unilateral measures, there is a need for negotiating with each developing country again in order to make the S&DT regime stronger and beneficial.
†Research Fellow, Centre for Trade and Investment Law, New Delhi, India (established by Ministry of Commerce and Industry, Government of India in 2016). Please note that these remarks are made in the author’s personal capacity and do not represent the views of Government of India. E-mail: manya.ctil@iift.edu.
[1] Mehedi Hasan, ‘Special and Differential Treatment in the WTO: Its Content and Competence for Facilitation of Development’ (2016) 7 Nnamdi Azikiwe U. J. Int’l L. & Juris <https://www.ajol.info/index.php/naujilj/article/view/136291/125781> accessed 11 September 2019.
[2] Manuela Tortora, Special and Differential Treatment and Development Issues in the Multilateral Trade Negotiations, The Skeleton in the Closet, UNCTAD, Geneva, January, 2003 <https://unctad.org/Sections/comdip/docs/webcdpbkgd16_en.pdf> accessed 11 September 2019.
[3] World Bank uses Gross National Income for its operational lending policy. See ‘Why use GNI per capita to classify economies into income groups’ <https://datahelpdesk.worldbank.org/knowledgebase/articles/378831-why-use-gni-per-capita-to-classify-economies-into> accessed 21 September 2019.
[4] United Nations Development Programme (UNDP) uses Human Development Index and classifies countries accordingly. See Human Development Reports <http://hdr.undp.org/en/composite/HDI> accessed 22 September 2019.
[5] To get an understanding of who developing countries are under WTO, See <https://www.wto.org/english/tratop_e/devel_e/d1who_e.htm> accessed 21 September 2019.
[6] Akiko Yanai, Rethinking Special and Differential Treatment in the WTO, IDE Discussion Paper No. 435, December 2013 <https://pdfs.semanticscholar.org/6dac/89e2da9fdedb49f18dbc0dbfdbed33e490bb.pdf> accessed 12 September 2019.
[7] The WTO classifies the measures in six categories: to promote market access, to safeguard developmental interest, flexibilities, transitional periods, provisions of technical assistance and flexibilities for LDCs. The latter three categories are considered to be repetitive.
[8] Amar Breckenridge, ‘Developing an issue-based approach to special and differential treatment’ (Third Meeting of the Integration and Trade Network, Inter- American Development Bank, 19-20 March, 2002).
[9] Peter Kleen and Sheila Page, Special and Differential Treatment of Developing Countries in World Trade Organization, 2005, Global Development Studies No. 2, EGDI Secretariat, Ministry of Foreign Affairs, Sweden.
[10] ibid.
[11] Doha Round of negotiations also known as DDA was launched in 2001. It covered near about 20 areas of trade. Facilitation for developing countries and LDCs for integration with global economy was a major focus point. The only successful agreement out of DDA is Trade Facilitation Agreement. The negotiations have come to a halt as the developed countries want to discuss new issues of e-commerce and investment etc. whereas the developing countries are fixed at achieving solutions of existing issues in agriculture, intellectual property etc.
[12] An Undifferentiated WTO: Self-declared Development Status Risks Institutional irrelevance, Communication from the United States, 16th January, 2019 WT/GC/W/757.
[13] ‘The Continued Relevance of Special and Differential Treatment in Favour of Developing Members to Promote Development and Ensure Inclusiveness’, Communication by China, India, South Africa and the Bolivarian Republic of Venezuela, Lao People’s Democratic Re-public, Plurinational State of Bolivia, Kenya and Cuba, Central African Republic and Pakistan, WT/GC/W/765/Rev.2, 4th March, 2019
[14] Memorandum on Reforming Developing-Country Status in the World Trade Organization, Issued on 26th July, 2019 <whitehouse.gov/presidential-actions/memorandum-reforming-developing-country-status-world-trade-organization/> accessed 13 September 2019.
[15] Enabling Clause was adopted under GATT in 1979 and enables developed members to give preferential treatment to developing countries. It forms the basis for Generalized system of Preferences, wherein developed countries unilaterally determine which countries and which products are included in the Scheme. See, Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, dated 28th November, 1979 (L/4903) <https://www.wto.org/english/docs_e/legal_e/enabling_e.pdf > accessed 13 September 2019.
[16] Frank J. Gracia, ‘Beyond Special and Differential Treatment’ (2004) 27(2) Boston College International and Comparative Law Review.
[17] ‘The Continued Relevance of Special and Differential Treatment in Favour of Developing Members to Promote Development and Ensure Inclusiveness’, Communication by China, India, South Africa and the Bolivarian Republic of Venezuela, Lao People’s Democratic Re-public, Plurinational State of Bolivia, Kenya and Cuba, Central African Republic and Pakistan, WT/GC/W/765/Rev.2, 4th March, 2019
[18] Draft General Council Decision, Procedure to strengthen the negotiating the function of the WTO, dated 15th February, 2019.
[19] The Report of the first Warwick Commission, The Multilateral Trade Regime: Which Way Forward?
<https://warwick.ac.uk/research/warwickcommission/worldtrade/report/uw_warcomm_tradereport_07.pdf> accessed 13 September 2019.
[20] Memorandum on Reforming Developing-Country Status in the World Trade Organization, Issued on 26th July, 2019 <whitehouse.gov/presidential-actions/memorandum-reforming-developing-country-status-world-trade-organization/> accessed 13 September 2019.