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A WTO Daniel comes to rescue of majors on differentiation

Geneva, 11 April (Chakravarthi Raghavan) - The Negotiating Group on Market Access (NGMA), chaired by Amb. Pierre-Luis Giraud of Switzerland, is meeting from 14-16 April to continue its efforts to agree on modalities for negotiations on market access for non-agricultural products.

The NGMA is mandated by the Trade Negotiations Committee to agree on modalities text for negotiations on market access for non-agricultural products by 31 May.

The WTO has so far missed four deadlines arising from the Doha Ministerial meeting and the declarations there: on implementation, on the Special and Differential Treatment questions (both for making past UR provisions operational and for drawing up a framework accord on this issue), on implementing para 6 of the TRIPS and Public Health Declaration, and the modalities for agricultural negotiations.

While all these four have been missed as a result of the positions taken by the US, Europeans and Japan (mainly), all of them (as also the WTO head Dr. Supachai Panitchpakdi) are keeping up the pressures to get the modalities agreed by 31 May on market access for non-agricultural products.

One of the issues to be tackled at next week’s meeting is the kind of ‘formula approach,’ if any, to be adopted for tariff reductions on non-agricultural products.

The meeting will have before it a secretariat document JOB(03)/67 - purporting to be a simulation exercise done by the secretariat, on its own responsibility, on the effects of various formulae and approaches for tariff cuts which are on the table, and out of which or a combination of which, or none at all, a formula for tariff cuts would have to be agreed as part of the modalities.

In this document, without specifically saying so, the secretariat has sought to challenge the very concept of ‘developing countries’, distinguishing it from the ‘developed countries’, with a ‘self-elective’ process for a country to be characterized as ‘developing’ or ‘developed’. This is a principle that has been accepted by UN and in practice in the United Nations and its system of which the GATT secretariat was once a part, and is so even now for many purposes - for e.g. to attend and participate in the ACC, the body of heads of the UN organizations and agencies. This also enables the WTO staff including those who wrote the simulation paper, to enjoy the UN privileges of laissez passe for travel around the world without having to get visas etc on their national passports.

The formula approach proposals of China and India both involve some variations in a formula to be used for tariff cutting - distinguishing between the developed and developing countries.

In trying to project a simulation exercise, with the results presented in tables and in a tabular form (against each WTO member) of the effects of the various formulae, the WTO secretariat paper, in respect of both the Chinese and Indian formulae, presents the outcomes in two columns each - one column treating each of the WTO members as a developed country and another column next to it treating the WTO member as a developing country!

The Chinese proposal (TN/MA/W/20) distinguishes between ‘developed’ and ‘developing’ and ‘newly acceding’ country members in terms of the base rates to be used for tariff cuts (applied rates for developed countries in year 2000, and the simple average of applied (in year 2000) and bound rates under the Uruguay Round for developing country members) and the simple average of their applied rates in 2000 and the final bound rate in their accession schedules.

As for reductions, China has proposed a uniform formula for tariff reductions.

The Indian proposal (TN/MA/W/10/Add.1), underscores the “less than full reciprocity” approach mandated by the Doha declaration in regard to developing country tariff reductions, to rule out any drastic tariff reductions by applying any general formula approach. It also underscores the provisions of paragraph 3 ( c) of Art.XXVIII bis of GATT) which provides for developing countries making offers etc on the basis of their judgements of their fiscal, developmental, strategic and other needs.

Against this approach, the Indian proposal provides that for tariff lines already bound, any reductions will be from the bound rates, and not from applied rates.

The method of reduction for existing tariff bindings for bound item is to consist of:

*        a simple percentage cut on bound tariffs of each Member, with a higher percentage to be set for developed countries than the percentage set for developing countries;

*        No tariff is to be imposed on any product in excess of three times its average tariff, after effecting the tariff cut in the first asterisked indent above;

*        in effecting reductions of tariffs by developing countries, their dependence on customs revenue - i.e. percentage contribution of customs tariff to the overall revenue collected by the government - may also be a factor to be kept in view; and

*        flexibility is to be available to developing countries to decide on the actual bindings on some tariff lines as a S&D measure while still maintaining the percentage reductions on average basis in first asterisked indent above.

As for unbound tariff lines, considered to be items generally more sensitive, greater flexibilities are to be provided by:

*        for unbound tariff lines, the developing countries are to have the flexibility to bind them at levels generally above the higher of the bound rates prevailing for bound items in a country’s schedule;

*        product coverage is to be comprehensive and without a priori exclusions, but developing countries are to have the flexibility not to bind certain unbound tariff lines still considered domestically highly sensitive or strategically important.

The Indian proposal also makes a distinction as between developed and developing countries, in terms of the period over which the tariff cuts are to be implemented (as in the Uruguay Round).

Both the Chinese and Indian proposals have argued how each of their proposals would implement the S&D and Enabling Clause provisions, and the merits and demerits of other approaches. These are of course relevant to the negotiating process among members, but not for the tables.

The secretariat is not a negotiating party, but only a ‘contracted’ party and is there to service the negotiations and carry out any tasks assigned to it; and more than ever before when an overwhelming majority are developing countries (and transition economies, with many of these falling into the ‘newly acceding category), the secretariat officials and its head, who ran and got elected on the basis of his developing country credentials, are expected to and ought to maintain their neutrality, if not being partial to the views and needs of the large majority.

Nevertheless, in this document, the secretariat even by claiming it has no way of distinguishing between developed and developing, has dealt with the effects on all 146 members, in terms of the Chinese and Indian proposals, in two adjacent columns for each, one viewed as a developing country and another as a developed - including for the EC, Japan, US, Canada etc.

The document itself contains no explanation.

However some trade diplomats appear to have sought a clarification or explanation from the secretariat division concerned, and appear to have shared it within their various groupings (African, LMG etc).

According to this information from several trade diplomats, the explanation of the WTO secretariat and the officials who did the simulation and presented it in this form, is that there is no ‘definition’ of the term ‘developing country’ in the WTO, and thus the secretariat could not make a judgement!

Unfortunately, for the secretariat, there are several agreements where there are references to ‘developing’ countries and kinds of special and differential treatment provided for them, including in the tariff cutting formulae of the Uruguay Round, in general, and for agricultural products where there are separate treatments on cuts in domestic support, export subsidy and tariff cuts.

At the time the Uruguay Round talks were concluded at the official level in December 1993, with agreements drawn up and settled, in terms of the agricultural agreement for example, where there is a differing treatment provided for developing and developed countries, after each country had put in a schedule of their AMS support values (after converting any non-tariff protection into tariffs, with developing countries excluding their restrictions on BOP grounds under the then GATT secretariat advice, and many of them now ruing it), and the tariffs and tariff cuts they were effecting, all these were plurilaterally scrutinised and agreed to by everyone before they could be officially filed.

No one at that stage - not the US, EC, Japan, Canada, Australia or anyone else - challenged the schedule of any country, which designated itself as ‘developing’ and took advantage of its provisions.

In GATT practice, tariff concessions exchanged, bilaterally and plurilaterally, and then scheduled are not challenged legally afterwards in a dispute; only the attempts of countries to qualify their concessions through headnotes and footnotes are and can be challenged, and sometimes have been upheld, when it is shown to be contrary to their mutual agreements.

Since then there have been other disputes that have come up, where tariff schedules are issues, as well as some where there are S&D provisions, and some developing country or other have cited them to argue that the other party has not observed its obligations - for example lesser countervailing duties in anti-dumping or subsidy provisions.

The developed country parties in these disputes have taken the position that they have kept to the letter of the agreement, by taking into account the position of the other party as a ‘developing country’. But no one has challenged the pleading on the basis that the other party is not a ‘developing country’ because of a lack of agreed WTO definition, or because it is a self-elective classification.

Some of these questions have gone before panels, and have been agitated before them - for example, in the dispute against India over its BOP restrictions, application of Article XVIII:B of GATT, and the responsibility of the panel to provide S&D treatment to India. The panel explained how it had done so, and India agitated this in appeal, and the AB even when ruling against India, did not challenge India’s contention as not legally based in the WTO texts of the agreements.

How could the WTO secretariat now try to turn this history on its head by taking the position that as a secretariat it cannot decide which is a developing and which is a developed member?

The WTO’s answer seems to be that there is no ‘legal’ provision which they could use to judge the characteristic ‘developing’ and ‘developed’!

But can there be anything more legal than the Dispute Settlement Understanding (DSU) and its provisions, some of which make a distinction between developing and developed.

One of the DSU provisions is Article 8 which deals with composition of panels, and its Article 8.7 where panels are actually constituted by the Director-General in the absence of agreements between two parties, and Article 8.10 in disputes involving a developing and developed country member where at the request of the developing country concerned one of the panellists must be from a developing country.

Most, if not all the members, of the panels constituted are those where the D.G.  has to name the panellists because the two parties cannot agree. And even before this stage is reached, the secretariat sends to the parties a list of possible panellists from out of which the two sides are expected to agree. And keeping an eye on this, the secretariat’s initial list of panellists sent to the parties do contain panellists from developing countries too.

In several cases where the panels have been named by the DG, and where the request has been for a developing country nominee, that too has been done: no questions have been asked whether the country is a ‘developing country’, and under what legally binding WTO definition etc.

To suggest now that the secretariat does not have an agreed definition, and hence it has provided simulation on basis of treating a country as a developing and as a developed country sounds more like a Daniel come to the rescue of the Damsel (Shakespeare’s Merchant of Venice, Act IV Scene I).

For some time now, developing countries are in a majority, and if only they choose to assert themselves and even by threatening a vote, they can prevail.  But at least the WTO should be conscious of this, and not function like the IMF or the World Bank which function on a one-dollar-one-vote principle of governance.

But the WTO is not on that basis; it is a one-country-one-vote principle, but acting on consensus as far as possible as required by the WTO agreement.

Of the 146 WTO members, 29 are OECD members, and joining the OECD requires them not to be a part of any other grouping and thus self-electively they could be considered to have left the developing country grouping - even though for example Mexico found it expedient to leave the G77 group in Geneva but keep its membership in the UN in New York and in the WTO too.

Even at Havana, the US did not want any distinction between ‘developing’ or ‘developed’, and removing such distinctions has been part of the trade authority objective since the time of the Tokyo Round. Successive heads of the GATT and then the WTO (Olivier Long, Arthur Dunkel, Peter Sutherland, Renato Ruggiero and Mike Moore) in advancing the dominant interests and the liberal ideology, wanted the distinctions removed and favoured ‘differentiation’ and ‘graduation’, but none had the courage, intellectual or moral, to advocate it openly in any UN fora, or even formulate a norm that could be argued and discussed.

Unfortunately, it has been left to Dr. Supachai to bring it up (at the UNCTAD Trade and Development Board last year) and elsewhere, including at a meeting of key developing country senior officials on 5 April at a meeting in neighbouring France - arguing though that the ‘graduation’ is inevitable, and therefore developing countries must find a way of doing it. – SUNS5324

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