Special and Differential Treatment for Developing Countries in the WTO - Research Paper Example

Special and Differential Treatment for Developing Countries in the WTO The World Trade Organization (WTO), headquartered in Geneva, Switzerland, officially came into being on the 1st of January, 1995 (WTO 12). It replaced the General Agreement on Tariffs and Trade (GATT) with the intention of liberating and supervising international trade. The WTO lays down a structure of bargaining for agreements and making them official. It also provides a procedure for dispute resolution that targets to enforce member states’ adherence to the agreements, signed and ratified by all their respective parliaments. Out of the member states numbering about 150, two thirds are among the developing countries of the world (Greenway & Chris 24). By virtue of their numbers, dependence on trade as a development tool and diversity in views and needs, they play an active and significant role in the WTO and global economy. This paper will discuss the ways in which the WTO treats different countries at different development levels. Agreements of the WTO contain provisions allowing special rights to developing countries. Based on their lower development levels, the developing countries are accorded what the WTO terms as special and differential treatment, and are different from the manner in which developed countries are treated (Greenway & Chris 23). On their part, developed countries are given the possibility of treating the developing countries in more favorable ways that other member. Following the failure of the WTO Ministerial Conference that took place in June 1990 in Seattle, a debate on special and differential treatment developed within the trade policy community (Greenway & Chris 23). The debate was a result of politically coordinated efforts by developing countries to minimize their perceived postwar inequalities in international trade through the introduction of preferential treatment favoring their countries (Hoekman & Kostecki 71). Previously, the developed countries recognized that their developing counterparts had a need to increase revenue via duties on imports to finance their economic growth (Finger & Andrej 33). Partly based on this fact, GATT did not emphasize on reciprocity for concessions granted to the developing countries by the developed ones. That meant that the developing countries needed not reduce tariffs by corresponding margins for them to realize benefits of the tariff concessions extended to them by the developed countries (Finger & Andrej 33). With regards to the ongoing difficulties experienced by the developing countries, they rallied for additional concessions resulting in the proposals for preferential access of their products to the markets in the 1960s (Finger & Andrej 34). The significance of special and differential treatment has risen from the framework established by the GATT and presently that of the WTO as the developing countries widen their agendas in multilateral trade. During the Fourth Ministerial Conference of the WTO in Doha, the member governments and ministers were in agreement that the provisions of the special and differential treatment need to be reviewed and strengthened to make them more executable, operational and effective (Hoekman & Kostecki 73). Some of the provisions put in place to meet the special and differential treatment cause, through the Committee on Trade and Development, included: support to assist developing countries put up the infrastructure for WTO work, manage disputes, and employ technical principles and measures to enhance trade openings for these countries, provisions in relation to the least developed member countries, more time allowances, including technical assistance whenever necessary and possible, to implement commitments and agreements and, provisions calling for all WTO member states to protect and maintain the developing countries’ interests in trade when taking on international or domestic measures, such as technical trade barriers or anti dumping campaigns (WTO 19). The Committee on Trade and Development was mandated through the declaration to select the provisions considered as mandatory, including the legal and realistic implications of converting into mandatory those which were considered as not binding (Greenway & Chris 15). The committee was further mandated to implement ways to assist the developing countries take advantage of the special and differential treatment in their trade endeavors. The WTO’s agreements acknowledge and recognize that the developing countries should gain from the greatest flexibility possible while the developed members should put in more effort to minimize barriers on imports from such countries. A significant way in which the WTO is helping the beneficiary developing countries move towards building sustainable capacity in trade is through its technical assistance and training programs. These activities are coordinated by the WTO’s Trade Related Technical Assistance (TRTA) programs and activities, and in turn supervised by the Committee on Trade and Development. As proposed and confirmed in Doha by the ministers in December 2001, and further emphasized in December 2005 in Hong Kong, technical assistance and training make up core components of the development aspect of the multilateral trading system. Among the provisions that allow developing countries more transitional time include the agreement on agriculture. It states that members from the developing countries are allowed the flexibility of up to 10 years to execute reduction commitments, as compared to the six years granted to the members from developed countries (WTO 21). Furthermore, there is a group considered as the least developed, and they are not required to give reduction commitments. The developing countries are required by the Trade Related Investment Measures (TRIM) agreements to do away with all such TRIMs as made known to them via notice. They (developing countries) are given guidelines to eliminate them within five years while the least developed country members are given seven years as opposed to the two years accorded to the developed country members. On top of the basic five and seven years given to developing and least developed countries respectively, an agreement on customs valuations allows them to extend the periods by not more than five years on sympathetic considerations. The customs valuation agreement also enables the developing countries that base the value of goods on minimum values established officially to make reservations that make it possible for them to maintain the values on a transitional and limited basis under agreed terms and conditions. The subsidies and countervailing agreement allows eight years for developing countries that are neither the least developed, nor those with less than $1000 per annum of per capita income, to phase out proscribed subsidies in export (WTO 12). It also gives room for a five and seven year transitional period respectively over which prohibition on subsidies dependant on the use of homegrown goods over imported ones does not apply. Trade Related aspects of Intellectual Property rights (TRIP) agreement gives the developing countries member states the entitlement to delay in applying for the agreement’s provisions by up to five years from the entry date into force as opposed to the one year allowed to the developed country member states (Matthews 44). Within the developed country members, if the production of a patent for a product is not extended on the date of application with respect to technological areas, for example pharmaceutical and chemicals, the member is entitled to a five year delay in the application of the product’s patent application. The least developed country members have an entitlement to postpone the application of TRIPs provisions for up to 11 years after the date of coming into force. This, however, is with the exception of those placed under national treatment of most favored nations (Matthews 46). The WTO’s agreement preface recognized the unique requirements of developing countries to enhance their positive efforts, deliberated to ensure that they secured a potion in the development and expansion in international trade, proportionately to their needs in economic development. Before its 40th anniversary, GATT’s members concluded that the system was struggling to become accustomed to a world economy that was globalizing. In response to the issues highlighted by the Ministerial Declaration of 1982 that included structural deficiencies, the eighth GATT round was established in Uruguay in September 1986 (Greenway & Chris 39). This is what came to be known popularly as the Uruguay Round. It was the largest ever agreed trade negotiating authority. Its talks were aimed at extending systems of trade into other new fields like trade in intellectual property and services as well as reforms in the sensitive textile and agricultural sectors. Most of the prefaces in the Uruguay Round’s Final Act were more generous to the least developed countries. It was stipulated in the Uruguay Round that the least developed countries will only undertake concessions and commitments to extents at par with their individual financial, trade and development requirements. They could also be matched to their institutional and administrative capabilities. On the other hand, it is worth noting that there are various exceptions in the Uruguay Round agreements designed to benefit groups of producers from certain developed country members. This, in effect, supports proposals from some developing countries with regards to special and differential treatment that certain special conditions need special consideration. They provide that restrictions in trade are appropriate and legitimate tools for purposes of development. For instance, after the Uruguay Round came into force, developed countries were still allowed to employ some otherwise abolished instruments of trade in specific areas. For example, they were allowed to use flexible restrictions in import of clothing and textiles up to 2005. They were also allowed the use of mechanisms to specifically safeguard and control access to market of selected agricultural products and a high stake in domestic support subsidies in agricultural exports. In addition, the three agreements on countervailing measures, subsidies and agriculture favored the developed countries through allowing subsidies generally used within the developed countries on research and development while they prohibited the subsidies that could be relevant to the developing and least developed countries. The special and differential treatment in agriculture was provided in various ways to developing countries by the WTO agreement (Hoekman & Kostecki 53). The developing countries could decide to institute their preliminary bound levels of tariffs using upper limit bindings at any level they picked on, instead of being needed to convert the border protection procedures that existed, into tariffs. They were preferentially given percentage reductions that were lower and longer periods for implementation of their tariff reduction, reduction in export subsidies and domestic support. The developed countries did not have to give any commitments on reduction. There was more flexibility offered in using some policy instruments like export subsidies or investment subsidies. There were also special provisions for developing countries that were importing food. Given these reasons, WTO disciplines did not always bind the developing countries. For instance, tariffs applied by a sample of 32 countries from the developing countries members averaged 20 percent although their bound tariff levels averaged at 84 percent (Hoekman & Kostecki 58). Only a few developing countries are close to their limits on allowed domestic support that distorts trade, and much fewer would be in a practical position to offer subsidies on exports even if they were accorded the right to do so. Developing countries wanted the rules bent sufficiently to suit their own needs (Hoekman & Kostecki 76). They raised concerns that their liberty to act in response to surges in imports, low prices in the world market or inability to regulate their home markets to put food security in place, could be put at risk by the Doha Round negotiations. The Doha Development Round, which is the existing round of negotiations, was launched by the WTO in Doha, Qatar, during the fourth ministerial conference in November 2011. Its target was to ambitiously push for globalization to be a more inclusive venture and help the poor nations around the world by cutting down subsidies and barriers in farming. Its primary agenda was to develop liberalization in trade and make new rules, driven by a commitment to improve aid to developing countries. The negotiations have been characterized by controversies and disagreements over key fields like agricultural subsidies which came into view as critical matters in 2006. One controversy was cited by a statement from the European Union that highlighted the fact that a ministerial meeting in 2008 collapsed because of disagreements between countries with considerable populations of subsistence farmers and exporters of bulk agricultural commodities. The disagreement was on the exact terms of the special measures of safeguard in place to cushion farmers from the surges in imports. The European Commission held its position that, had the Doha negotiations been concluded successfully, it would have confirmed the WTO’s core responsibility of making rules and multilateral liberalization. A stalemate still existed by June 2012, without an agreement in place in spite of a number of ministerial conferences and intense negotiations. Nevertheless, most developing countries do not believe that the current flexibility in the agreement on agriculture goes far enough. In spite of the preceding generalizations, there are cases where the liberty of action for certain countries and commodities are now restricted by commitments they subscribed to under the agriculture agreement. Their argument is that for food security, rural development and livelihood, they should hang on to the ability to support and provide protection to domestic production of food, including protection of consumers and producers against import surges and unstable world prices. The developing countries also point out an irregularity in the current agreement (Hoekman & Kostecki 77). They argue that the disciplines imposed on developing countries are ironically stricter in comparison to those imposed on developed countries. Because farmers in a few developing countries, for example, receive domestic subsidies, their countries are limited in their future trade distorting support by subscribing to the agreement to minimum amounts of such support. On the other hand, develop countries can offer their farmers trade distorting support way over the stipulated levels and still be within the terms of the agreement (Hoekman & Kostecki 63). It was confirmed by the Doha Declaration that special and differential treatment will be made a fundamental ingredient of all factors of the agricultural negotiations. This was aimed at making them effective operationally and to enable developing countries to take account of their needs in development, which included rural development and food security. The practical application of these declarations will depend on the decisions made in various negotiating disciplines, including special products, reduction of tariffs, erosion of preferences, domestic subsidies and special safeguard mechanisms. All developing country members of the WTO are eligible to such treatment. To qualify as a developing country is a simple matter of self declaration. Therefore, categories of developing countries are as diverse in their capacities in economic potential and competition as South Korea and Singapore on one part, and Malawi and Benin on the other (Hoekman & Kostecki 73). The developed countries provide that higher levels of differentiation that are required among the developing countries for them (developed countries) to be able to provide more generous special and differential treatment. They also argue that special and differential treatment needs to be formulated depending on a developing country’s capability to accept the disciplines of the WTO. However, most developing countries rejected the suggestion of greater differentiation. Numerous developing countries realized substantial development between 1985 and 1996, especially in the South Eastern parts of Asia, by export driven strategies and grew their shares in the value of merchandise exports in the world (Greenway & Chris 37). However, others in Latin America and Africa experienced a decline in the same period. In spite of the achieved progress by certain developing countries, many others continued to depend on exporting primary products for a considerable portion of their earnings in foreign exchange as well as gross national product. During that period, most developing countries derived their export earnings from exporting primary commodities. Africa had the highest share in primary commodities followed by Latin America and Asia respectively. Commanding a 64 percent share, Africa was well above the combined percentage share of the rest of the world in primary commodities (Greenway & Chris 51). In terms of export earnings derived from manufactured products, Asia had the highest percentage share followed by Latin America and Africa at the bottom. Relying on export of primary commodities had, therefore, created two categories of problems for Africa. The first one was the volatility in earnings realized from exports because of the volatility in export prices of commodities (Greenway & Chris 52). The second one was the outlook of a long term decline in the terms of trade that inflicts higher social and economic costs upon developing countries. A related problem is the higher dependence on foreign trade by developing countries as compared to developed countries. Foreign trade contributes more to the developing countries’ national incomes. The developing countries also have to import most of the capital goods, intermediate goods and raw materials. In most circumstances, such imports exceed the countries’ revenues from exports, resulting in unplanned trade deficits. These are some of the underlying conditions that called for liberalization in trade to be a promotional tool converging standards of living and development levels among developing and developed countries. In conclusion, the WTO does not specify or define results. Its principles regarding the trading system are only concerned with establishing a structure of policies in trade (Matthews 72). There are five key principles that guided both GATT before 1994, and the more recent WTO. They are as described below: Reciprocity In reciprocity, there is a reflection of both a desire to get better and easier access to external markets, and a desire to put a limit and control on the extent of free riding that may be occasioned by the rule of the most favored nation (Matthews 66). A point related to reciprocity opines that for a country to negotiate, it is a necessity that whatever they gain from the activity is more than the available gain from unilateral liberalization. The reciprocal concessions aim at ensuring the materializing of such gains. Non Discrimination The non discrimination clause comprises two components, which are the national treatment policy and the most favored nation rule. Although they are both embedded in WTO’s main rules on services, intellectual property and goods, their exact nature and coverage are different across these fields (Matthews 74). The rule on the most favored nation stipulates that members of the WTO should apply similar terms and conditions on all activities of trade between themselves and other members of the WTO. Members are obliged to offer the best conditions by which they permit trade in certain types of products equally to all members of the WTO. On the other hand, national treatment provides that goods produced domestically must not be treated in preference to imported ones (Matthews 72). It was mainly implemented to mitigate non tariff trade barriers. Examples of these are security and technical standards that discriminate against imported goods. Enforceable and binding commitments The commitments made by members of the members of the WTO on tariffs on accession and multilateral trade negotiations are itemized in a list of concessions that establish upper limit bindings. They stipulate that countries may change their bindings, but that can only be done following negotiations with its partners in trade (Matthews 89). This may compel the countries wishing to change their bindings to compensate their partners for the losses they will suffer in trade. If the country incurring losses is not satisfied by the compensation, they may take up on dispute solving procedures outlined by the WTO (Matthews 91). Safety Valves Governments are permitted by the WTO to restrict trade in specific, predetermined circumstances (Matthews 86). The agreements of the WTO allow member countries to take necessary measures with an aim to protecting the environment, public, plant and animal health. To this end, the WTO provides three provisions. The first allows the implementing of trade measures to achieve non economic goals. The second intends to instill fair competition. However, the members are warned not to use protection measures preserved for the environment as a disguise to protectionist policies. Thirdly, there are provisions allowing interventions in trade for economic purposes. Exceptions specified by the most favored nation rule permit preferential treatment of customs unions and free trade areas (Matthews 86). Transparency Member countries of the WTO are compelled to establish institutions that allow for the evaluation of administrative decisions that affect trade, make public their regulation of trade, notify the WTO of changes in policies of trade and respond to member countries’ appeal for information (Matthews 89). Such internal transparency measures are facilitated and complemented by periodic reports specific to a country via the trade policy review mechanism. The systems the WTO has in place also try to develop stability and predictability while discouraging using quotas to fix limits on import quantities. Works Cited Finger, Michael & Andrej, Olechowski. The Uruguay Round: A Handbook on the Multilateral Trade Negotiations. Washington: The World Bank, 1987. Print. Greenway, David & Chris, Milner. The Uruguay Round and Commonwealth Developing countries: An Assessment. London: Economic Affairs Division, Commonwealth Secretariat, 1995. Print. Hoekman, Bernard & Kostecki, Michael. The Political Economy of the World Trading System: From GATT to WTO. London: Oxford University Press, 1997. Print. Matthews, A. Special and Differential Treatment in the WTO Agricultural Negotiations. Geneva: WTO, 2005. Print. World Trade Organization (WTO) Annual Report 1998. Geneva: WTO, 1998. Print. Read More