The continued relevance of S&DT in favour of Developing Members to promote development and ensure inclusiveness

The continued relevance of S&DT in favour of Developing Members to promote development and ensure inclusiveness
Photo credit: Paul Hahn | Aid by Trade Foundation

20 Feb 2019

Communication from China, India, South Africa and the Bolivarian Republic of Venezuela, for discussion at the Formal Meeting of the WTO General Council on 28 February 2019

The persistence of the enormous development divide between the developing and developed Members of the WTO is reflected on a wide range of indicators.

It is evident in levels of economic development, industrial structure and competitiveness, such as GDP per capita, poverty levels, levels of under-nourishment, production and employment in agriculture sector, trade in services, receipts from IPR, share of trade in value-added under GVCs, energy use per capita, financial infrastructure, R&D capacity, company profits, and a range of institutional and capacity constraints, among other things. Despite impressive progress achieved by developing Members since the creation of the WTO, old divides have not been substantially 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.

Against this background, recent attempts by some Members to selectively employ certain economic and trade data to deny the persistence of the divide between developing and developed Members, and to demand the former to abide by absolute “reciprocity” in the interest of “fairness” are profoundly disingenuous. The world has indeed changed in many ways since the GATT and the establishment of the WTO, but in overall terms the development divide remains firmly entrenched. It is therefore of greater concern that some Members would attempt to ignore this reality in an effort to deprive developing Members of their right to develop.

Capacity constraint remains a serious problem for developing Members at the WTO. Notably, they often lack the requisite human resources, negotiating capacity, well-functioning intra-governmental coordination mechanisms, and the effective participation of social partners in trade negotiating processes. These deficiencies diminish not only the ability of developing Members to negotiate, but also the effectiveness of translating negotiated outcomes into measures for domestic economic growth.

The multilateral trading system, from the early days of the GATT until the establishment of the WTO, has recognized the differences in levels of economic development and wisely ensured that Special and Differential Treatment (S&DT) would be one of its cornerstone principles. The S&DT principle was understood as a way to ensure that negotiated outcomes would accommodate differences in levels of economic development as well as the capacity constraint of developing Members. It would allow developing Members the space to calibrate trade integration in ways that help them support sustainable growth, employment expansion and poverty reduction.

The current S&DT provisions in the WTO agreements were established through negotiations and compromises and were not gifts granted by developed Members. Nevertheless, most of the current S&DT provisions are “best endeavour” clauses, lack precision, effectiveness, operationality and enforceability. Their actual benefits to developing Members have fallen far short of expectation. In contrast, it is developed Members that have reaped substantial benefits by seeking and obtaining flexibilities in areas of interest to them; a form of “reversed” S&DT. The WTO rules-based system has helped in the growth of trade but has not made it equitable.

Since 1995, more developing Members have acceded to the WTO pursuant to Article XII of the Marrakesh Agreement. Their accession processes, in which they made tremendous efforts, significantly contributed to upholding the core values of the WTO including free trade, openness and non-discrimination; supporting the rules-based multilateral trading system; and maintaining a transparent, stable and predictable global trade environment.

The dichotomy of developed and developing Members is frequently used by almost all International Organizations (IOs) to describe the structure of today’s global economy. Various indices and classification methodologies may be adopted to determine the constraints and thresholds that divide developed and developing Members but the underlying rationale throughout is twofold: (1) that there are structural features behind the UN classification that distinguish countries in terms of their development challenges; (2) that these features form the basis on which countries classify themselves and are adapted to the various mandates, functions and statistical work of the IOs. For the WTO, the status of developed and developing Members are reflected in the bargaining process, and incorporated into the final rules themselves. The self-declaration approach has proven to be the most appropriate to the WTO, which best serves the WTO objectives.

Development divide

Many developing Members of the WTO have made significant economic progress over the past decades. However, it is also a reality that despite their efforts, they have not come anywhere near catching-up with the developed Members. Further, the gap between the developed and developing Members appears to have actually widened over time, instead of getting reduced. The development divide, which was taken note of in mid-1960s in Part IV of the GATT, continues to remain relevant today - perhaps even more relevant. Attempts at ignoring the need for S&DT provisions, or diluting it, is fraught with the risk of making future negotiations in the WTO even more difficult than today.

In spite of significant efforts made by the developing Members, the standards of living in most of these Members fall far behind that in the developed Members. The gap between the developed and developing Members is manifested in two ways. First, with reference to an indicator, the difference in value between the developed and developing Members widens over time; and second, even if the difference in value does not widen over time, the gap between the developed and developing Members during a time period is substantial. In respect of the indicators discussed below, the gap between the developed and developing Members has remained substantially high. In fact, in many cases the gap has considerably widened.

Besides, the essence of development is the human being. Hence, per capita indicators must be given the top priority when assessing the development level of a country. In WTO agreements, all the indicators used to assess development are based on per capita calculation. For example, in Article 8.2 (b) (iii) of Agreement on Subsidies and Countervailing Measures (ASCM), “income per capita”, “household income per capita” and “GDP per capita” are mentioned for the purpose of measuring the economic development of a member.

Trade: Trade in Services, IPR, GVC Trade in Value-added

According to UN’s World Economic Situation and Prospects Report 2018, in 2016, the population of developing economies constituted 85% of the global total, while their share in global services export was less than 30%, and their shares in the export of financial, telecommunication and other high value-added services were even lower. According to the WTO, the services export per capita of major developing Members was only 10% that of developed ones.

Since the creation of the WTO in 1995, in terms of the receipts of charges for the use of intellectual property rights, developed Members have not only maintained a dominant position but also witnessed much higher growth in contrast to developing Members. In 1995, the IPR receipt of charges of the European Union, the United States and Japan was $14.7 billion, $30.3 billion and $6.7 billion, respectively; by 2017, the figures had increased to $144.1 billion, $127.9 billion and $41.7 billion, respectively. The 2017 figures were respectively 30 times, 27 times and 9 times that of China ($4.8 billion); 206 times, 183 times and 60 times that of India ($700 million); 240 times, 213 times and 70 times that of Brazil ($600 million).

Compared with developed Members, developing Members have a heavier yet fragile reliance on trade. In the process of globalization, thanks to the comparative advantages in labour, some developing Members have been integrated into the global value chain. However, they remain at the lowest end of the “smile curve” by providing raw material, cheap manufacturing or assembling services, with low added-value but high risk.

Capacity constraint

As stated on the WTO website, the multilateral trade rules, the negotiating forum and the dispute settlement system of the WTO are not policy goals in themselves. Rather, they should be translated into the negotiating and participating capacity for developing Members. Thus, it is of vital importance to strengthen capacity building.

The OECD divides the level of negotiating capacity into five folds: (1) the negotiating skills and performance of negotiators; (2) the management capacity and potential of the institutional mechanisms; (3) the capacity of intra-governmental policy coordination; (4) the regulatory framework and public governance; and, (5) social norms and public awareness.

Based on relevant research and case studies of international organizations, the capacity constraint of developing Members in the WTO is reflected in the following aspects:

  1. The lack of negotiating capacity at human resources level: From the GATT to the WTO, developed Members have been in a dominant position in the initiation of negotiations, the design of rules, the assertion of rights, and even the “flexible use of rules”. However, developing Members, due to lack of resources are usually short of negotiators (especially experienced ones) and thus they are unable to achieve their objectives in the negotiations, as well as manage negotiation outcomes. Furthermore, the government budget is so limited that it is often the case that negotiation officials are not able to participate in negotiations in a systematic way.

  2. The lack of coordinating capacity at institutional level: Multilateral trade negotiations involve governmental agencies of foreign affairs, economy, industry, trade and other agencies of a member, which require overall coordination, speedy response and flexible adaptation. However, developing Members usually lack a unified policy across different departments and have difficulties in fully assessing and accurately analyzing the impacts of multilateral trade negotiations on the economic system, industrial development, among others; and formulating the national trade negotiation strategies and tactics accordingly. Such incapability leads to deficiencies in the leadership, stability and continuity of trade negotiations.

  3. The lack of negotiating and supporting capacity at social level: Think tanks and experts have insufficient foresighted visions and suggestions on trade negotiations, and thus failing to provide sufficient academic support to the government’s engagement in the global governance. The business community has not fully recognized the benefits of the trade negotiations and lacks an awareness of cooperation with negotiation officials. The popularization and advocacy of knowledge of multilateral trade negotiations are also insufficient.

  4. The former Chairperson for Group of 77, Ambassador Luis Fernando Jaramillo from Colombia, stated that “…in many instances translating these multilateral trade rights into concrete trade advantages requires action by governments with active support of the business community. Many developing Members have found themselves poorly equipped in terms of institutions, human and financial resources dedicated to this objective.”

In a word, the fact is that, for the multilateral trade negotiations, developed Members are usually well and proactively prepared, while developing Members often rush to respond in a reactive manner. There is a big asymmetry between the two in formulating multilateral trade rules due to the capacity constraint. The formal “de jure” equality cannot mask the “de facto” inequality in reality.