Dr. Boniface Chimpango, 01 March 2021
University of Huddersfield.
As the world of trade is celebrating the new head of the World Trade Organisation (WTO), developing countries will be waiting with baited breath for the new policy direction that the multilateral trading system may take under the new leadership in relation to the organisation’s development agenda, which has, hitherto, been stuck in the hamsterwheel of the Doha Round of negotiations.
The role of trade as a tool for economic development has been widely acknowledged in economic cycles. As such the development agenda has been at the heart of both the GATT and WTO Agreements. Both agreements have accorded developing countries special rights and privileges, collectively referred to as ‘special and differential Treatment’ (SDT), to facilitate participation of developing countries in the multilateral trading system. One of the criticisms of the WTO’s trading system is its lack of progressive and egalitarian rules and policies. In this piece we look at the existing SDT provisions within the prism of the arguement made by developing countries that WTO has so far failed to effectively implement its development agenda in so far as creating a level playing field for developing countries is concerned.
As stated above, the SDT for Developing Countries constitutes a central feature of the GATT/WTO system. The aim of SDT is ‘to foster export-led growth in developing countries’. For instance, one of the objectives of the WTO as stipulated in the chapeau to the WTO Agreement is sustainable economic development and it is also emphasised that international trade should be used as a tool for inducing economic development of least-developed countries. Also the GATT provides for the principle of non-reciprocal preferential treatment for developing countries, which allows developing countries to make matching offers in return when developed countries grant them trade concessions.
Further, The General Agreement on Trade in Services (GATS) has provisions to facilitate increased participation of developing countries in global trade by strengthening the competitiveness of their domestic services through access to technology and improving their access to information networks. Also, WTO’s Dispute settlement system has some provisions that favours developing countries. For example, Article 12.10 of the DSU requires sufficient time to be accorded to developing countries to prepare and present their case. Thus, in the case of India – Quantitative Restrictions, where the United States brought a dispute against India, the Panel granted India an additional ten days to prepare its submission.
Other SDT provisions include (i) longer time periods for implementing Agreements and commitments, (ii) measures to increase trading opportunities for developing countries, (ii) provisions requiring all WTO members to safeguard the trade interests of developing countries, (iii) capacity building in areas of dispute handling and technical standards implementation.
It is however observed that despite the WTO’s desire to facilitate development in developing countries through the multilateral trading system, the desire remains more of an aspiration than a realistic goal. There has been a growing clamour by developing countries about the systemic biases within the WTO framework, which have worked against their interests for many years. Their efforts to effect reform of different WTO provisions have not yielded much as evidenced by the unreasonable protraction of the Doha Round of negotiations, which has development as one of its key themes.
The main issue raised by many developing countries is that the legal disciplines under GATT and WTO agreements are marked with a ‘significant development deficit.’ As such although developing countries have numerical superiority, their position in the multilateral trading system has not yet substantially improved over the years. There are so many examples of SDT provisions that do not effectively support development interests of the developing countries and for that reason require reform as discussed below.
The first area of concern is the provisions on Tariff bindings under Article II of GATT. Under this discipline WTO members are required to make a commitment not to raise the customs duty on a certain product above an agreed level. It is, however, observed that although tariff bindings provide the needed stability for the multilateral trading system, they in the process prevent developing countries from adopting tariff measures above the maximum bindings that they may need to improve their domestic industries for purposes of development. Under Article XVIII of GATT developing countries are allowed to maintain some flexibility in their tariff structure in order to grant the tariff protection that may be needed to promote a particular industry or to apply quantitative restrictions for balance of payment purposes where there is high level of demand for imports, which are likely to be generated by the relevant economic development programmes.
However, although Article XVIII seeks to support developing countries to establish and promote industries for the purpose of economic development, paragraph 7 of this Article requires developing countries to engage in negotiations with other interested Members and to offer reciprocal concessions. Commentators have observed that requiring developing countries to consult and negotiate with other members may result in delays in implementing necessary development-related trade measures, and the reciprocal concessions would burden their economies and may be counter-effective to their development interests. As a reform proposal, it has been suggested that WTO should set up a “Development-Facilitation Tariff” scheme that will allow developing countries to set the maximum additional tariff rate above the tariff binding to help them develop their nascent industries.
Another area of concern is around the discipline of subsidies. Certain subsidies are prohibited (e.g. export and import substitution subsidies) while others are either actionable (may only be challenged if they cause adverse effects to other Members’ trade interests) or non-actionable. Prohibited and actionable subsidies, which are injurious to the domestic industry may be challenged directly in WTO dispute settlement, or, they can be offset by the application of a countervailing measure. Article 27.1 of the SCM Agreement recognises the important role that subsidies may play in economic development programmes of developing country Members. However, the fact that the discipline of subsidies under WTO rules apply indiscriminately to all member states, prohibition on grant of some subsidies have adverse effect on the economic development of developing countries. Also as actionable subsidies risk attracting countervailing measures by affected member countries, developing countries are left exposed to the wrath of developed countries. Critics have therefore concluded that the current trade rules have made “a significant dent in the ability of developing countries to employ intelligently designed industrial policies.” Again it is proposed that in order to address this systemic obstacle for developing countries, WTO should consider providing for special rules that would allow developing countries to adopt subsidies that may be ordinarily prohibited or actionable.
Another discipline of the WTO rules that works against developing countries is Ant-Dumping (AB) Measures. Dumping is defined as the introduction of a product into the commerce of another country at less than its ‘normal value.’ WTO members are allowed to counteract or ‘remedy’ dumping, through the imposition of AB measures. In practice, it is developing countries that have been found in the firing line of AB measures either because they are forced to lower their prices in order to penetrate the international market or because production costs are lower in developing countries and the prices of their products are generally low. It is reported that between July 2013 and June 2014, almost two-thirds of the AB investigations concerned imports from developing countries. The targeting of cheaper imports from developing countries for AD measures is considered to undermine the trade and development interests of developing countries. This is another area that needs reform.
Another WTO discipline that adversely affect developing countries is in relation to the certain trade-related investment measures (TRIMS). This is provided for under the WTO Agreement on Trade-Related Investment Measures (“TRIMs Agreement”), which regulates a range of investment measures that affect international trade such as local content requirements, import controls, foreign exchange balancing requirements and export controls. Generally investment contributes to economic development by bringing needed capital, technology, and management expertise to the host nation, and some of the TRIMs are designed to maximize investment’s contribution to the host country’s development agenda. In their study, Chang and Green, found that all of today’s developed countries have, in the course of their own development, adopted investment measures to meet their development objectives. However, the current restrictions on TRIPS prevents developing countries from using TRIPS as a development tool. As a result of this concern, twelve developing countries proposed a change to the text of the TRIMs Agreement to make commitments under the agreement optional rather than mandatory. It is also noted that some African countries have actually legislated for the adoption of certain TRIMs, such as local content requirements in defiance of provisions under the TRIMs Agreement. This shows the level of discontent that developing countries have with WTO rules on TRIMS.
Further, the provisions of Agreement on Trade-Related Intellectual Property Rights, (TRIPS Agreement) are also a source of concern for developing countries. The TRIPS Agreement sets out mandatory standards for the protection of intellectual property rights (IPRs), including patents, trademarks, copyrights, designs, and geographical indications. It also requires the protection of foreign IPR holders by incorporating other major IPR conventions and provides for enforcement against IPR violations. It is observed that in practice there is a tension between developing countries, whose priority is to acquire advanced technology and knowledge, with the aim of improving their industries and promote economic development, and developed countries, whose interest is to control access to their intellectual property. While IPR protection would be regarded as a legitimate interest for developing countries, the extensive obligations under the TRIPS Agreement are considered counterproductive to the development effort of developing countries whose legal and financial recourses may not be sufficient for extensive IPR protection. In fact according to a study that was conducted in 2000, implementing the TRIPS obligations would require the least developed countries to invest in buildings, equipment, training, and so forth that would cost each of them $150 million, which for many of the least-developed countries this represents a full year’s development budget. As such in order to help developing countries, there is need to consider developing countries from the application of the provisions in the TRIPS Agreement which impose legislative requirement on them.
Some developed countries have designed special trading arrangements, which offers duty-free, quota-free (DFQF) treatment on imports from developing countries with the aim of helping them grow their economies. Examples of such arrangements include the “Everything But Arms” (EBA) initiative by the European Union, which offers DFQF treatment to products currently exported by LDCs and the African Growth and Opportunity Act (AGOA) by the U.S., which eligible sub-Saharan African countries with duty-free access to the U.S. market for over some products. The problem is that these arrangements are not sponsored by WTO and therefore limited in their offering. It would be helpful if the WTO negotiated similar types of DFQF treatment that would apply to more developed countries. Also non-WTO negotiated agreement is likely to be faulted by the WTO. In the case of EC–Tariff Preferences the EC provided preferential arrangements to 12 countries, to assist in combating drug trafficking. The Appellate Body found that the arrangements were not justified by the Enabling Clause of the WTO Agreement because they were granted them to a ‘closed list’ of beneficiaries without proper criteria or standards for choosing those countries.
In 2013, WTO issued a Ministerial Decision on DFQF Market Access for Least-Developed Countries, which simply stated that Developed-country Members that do not yet provide duty-free and quota-free market access for at least 97 % of products originating from LDCs, should seek to improve their existing duty-free and quota-free coverage for such products, so as to provide increasingly greater market access to LDCs.
Perhaps the most telling evidence of WTO failure to facilitate economic development of developing countries, is the lack of progress in the Doha Round negotiations, which, inter alia, was supposed to review the all SDT provisions with a view to strengthening them and making them more precise. Also, the Doha Declaration mandated the Trade and Development Committee to identify which of those SDT provisions are mandatory, and to consider the implications of making mandatory those which are currently non-binding. The Doha negotiations have not yet yielded much for developing countries 19 years since commencement. One of the reasons for the delay is because developed countries have not been amenable to the Less Than Full Reciprocity negotiating principle which allows developing countries to cut less tariff than industrialised countries. Further the US and EU have resisted the calls from developing countries to reduce agriculture subsides, which adversely affect the competitiveness of agriculture products from developing countries. WTO have to this date failed to broker any deal between the two sides.
This discussion confirms that despite the recognition in the GATT and WTO agreements of the important role of trade in development, the WTO has failed to meaningfully implement the development agenda. Developing countries have been adversely affected, systemically, by a number of WTO discipline that favour developed countries in practice. WTO has not vigorously pushed for relevant reforms that would create a level playing field for developing countries. The impasse in the Doha development agenda negotiations is a confirmation of the WTO’s inability to champion the development interests of developing countries.
It is hoped that the new WTO administration will revise the Doha Round and ensure that the concerns of developing countires with the WTO trading system in its current incarnation are comprehensively addressed.
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