Implementing WTO Agreements: What Next?
Although more than 3 years have elapsed since the WTO agreements came into force, developing countries are still facing problems in the implementation of the agreements. With the approach of the proposed WTO Ministerial meeting of 1999 in mind, they should make a thorough assessment of the problems and deficiencies associated with the agreements, with a view to preparing themselves for getting these issues into the future work of the WTO.
by Bhagirath Lal Das
More than three years have passed since the WTO agreements came into force. The Member countries have had adequate time to assess: (i) the problems they face in implementation of the agreements; (ii) the problems arising out of the implementation of the agreements by other countries; (iii) emerging trends in the WTO; and (iv) the deficiency or inadequacy in the agreements.
The present time is very much opportune to make this assessment, so that concrete proposals for improving the implementation of the agreements or for improving the texts of the agreements are formulated. The proposed WTO Ministerial Meeting of 1999 is likely to identify specific issues for further consideration in the WTO and for this purpose, consultations and preparations may start in the second half of 1998. It is necessary for developing countries to list out specific issues from their point of view and prepare themselves for getting them included in the future work of the WTO.
Each country may have its own perception of the priority areas for further follow-up, but one can identify some problems which may be of interest to a large number of developing countries. Some examples are given below as illustrations. This list is by no means exhaustive.
This subject is scheduled to come up for intensive consideration by the end of 1999; hence it is one of the principal candidates for inclusion in any future programme of action. In the final phase of the Uruguay Round, the negotiation in this area got confined to the one between the US and EC. They came up with an agreed position which was finally adopted by all. Developing countries in general had hardly any say in this process. If developing countries are not prepared, they will again be faced with a situation as in the Uruguay Round.
It is, of course, true that there are various shades of difference amongst the interests of developing countries in this sector; but one can still identify areas where their interests almost converge. It may be prudent to develop on that theme, identify the elements which are of particular interest to the developing countries and pursue them in the negotiations.
Some of the most rigorous disciplines have been imposed in this sector; but the nature of disciplines is such that the burden has fallen much more on the developing countries than on the developed countries. Though there were norms for the reduction of market access barriers, domestic support and export subsidy, the operation of the norms was such that the developed countries, which had very high levels of these barriers, supports and subsidies would still be allowed to maintain these at considerably high levels. But the developing countries which were not using significant non-tariff barriers to market entry, except through the BOP provisions, or which were not having any domestic support and export subsidy, will be allowed to have only much lower levels of tariffs and will not be allowed to have any domestic support and export subsidy beyond the de minimis levels.
The farmers of the developed countries have enjoyed the protection and encouragement for a long time in the past. Besides, they are also comparatively much more endowed than those of the developing countries and have a much more favourable working environment. There is no reason why the governments of the developed countries should continue to subsidize them for production or export. In fact, it gives them an unfair advantage over the farmers of the developing countries.
The developing countries need to encourage their agricultural production for various reasons. First, for most of them this may be the only economic activity available to a vast portion of their population. Second, the development in this sector determines to a great extent the availability of food for the people, as will be elaborated later. Third, the activity in this sector may not take off autonomously without an active support of government because of poor infrastructure and low resources available to the farmers. In this background, the prohibition of domestic support and export subsidy may work as a great handicap to their agricultural development.
What is particularly important is that the developing countries should be able to produce enough food for their consumption. It will be extremely dangerous to depend on imported food products. They generally have low levels of availability of foreign exchange, and thus they may not be able to provide funds for imports. Besides, even if the foreign exchange is there, the food may not be readily available in the international market at the time of need for various reasons. Over and above, dependence on imported food is likely to constrain them in their foreign policy options in general. For all these reasons, it is important for developing countries, which have agricultural land, to produce food for feeding their population, even if the domestic production is at present costly. The current disciplines on import control and domestic support may hamper their efforts for food production.
The current provision addressed to the problems of the net food-importing countries is hardly of much operational significance. The problems of these countries have to be appreciated and solutions found in specific and real terms.
Based on the problems enumerated above, the following proposals appear self-evident.
I. The developed countries, particularly the major producers and exporters of agricultural products must eliminate their domestic support and export subsidy immediately. The commitment of reduction by certain percentages over a period of time as in the Uruguay Round is no longer adequate. What is needed is that they make a clear commitment to eliminate the domestic support and export subsidy altogether, effective from a particular date in near future. No amendment to the agreement is required for the purpose; all that is needed is that they provide schedules accordingly in pursuance of article 4 of the agreement.
II. The prohibition on the domestic support and export subsidy in the case of developing countries (which have not given the schedules for these measures) should be abolished. They are at present allowed to give domestic support up to the de minimis level; but it may not be adequate for their agricultural development. Those that have given the schedules for the reduction of domestic support and export subsidy should be allowed full flexibility to enhance these measures or to lessen the pace of reduction. What is needed for this purpose is that there should be an understanding in this regard in the context of article 3 of the agreement. If need be, there could be an additional provision in the agreement accordingly.
III. The food products in developing countries for domestic consumption should be excluded from the disciplines of import control and domestic support. It may need an appropriate elucidation of the implementation of articles 3 and 4 of the agreement or, if there is a need, there could be an additional provision in the agreement to this effect.
IV. There should be a more operational and specific provision to assist the net food-importing developing countries. One alternative may be to have an appropriate fund to which contribution should be made by those developed countries which are net exporters of agricultural products. This will need the addition of a specific provision in the agreement.
The problems in the implementation of the agreement on textiles are well known. The developed countries have claimed that they have fulfilled their obligations of progressive liberalization, even though they have brought about only miniscule liberalization in the product areas under restraint. In all fairness, they should give up taking recourse to technicalities and bring about real progressive liberalization in this sector. It is a real test of their conviction about the operation of market forces in international trade.
Besides, the developed countries should take active steps to facilitate full return of the textiles sector to the general WTO disciplines. They should orient their industries in this direction right from now, so that there is no pressure on these governments in 2004 to continue with the restrictive regime in this sector.
I. The developed importing countries should immediately bring about additional liberalization of the restrained products in order to make the actual liberalization of the restrained products up to the level of 33% as it was envisaged up to 1 January 1998. This should be done well before the next stage of liberalization.
II. The developed importing countries should work out a programme of structural adjustment in this sector, so that the industry in these countries is ready for total liberalization by the end of 2004. The programmes of individual developed countries should be given to the Committee on Textiles, which should review the implementation periodically.
No amendment of the agreement is needed to carry out these two steps; all that is needed is that the Committee on Textiles takes these decisions.
TRADE RELATED INVESTMENT MEASURES (TRIMs)
The agreement on TRIMs has very specifically prohibited the domestic content requirement flexibility, as it has been explicitly declared to be violating the national-treatment principle contained in Article III of GATT 1994. For the developing countries, it has resulted in a major handicap. The domestic content requirement is often used by them for; (i) preventing the wastage of foreign exchange, (ii) encouraging domestic economic activity in the sectors of raw materials and intermediate products, (iii) industrial upgradation for the production of industrial inputs. These steps have the twin advantage of conserving the scarce foreign exchange and providing local employment. An additional advantage may be in the form of technological upgradation as the user industries may be motivated to improve the local production of raw materials and intermediate products.
With the explicit prohibition of the domestic content requirement, all these possibilities are lost.
Developing countries should be excluded from the disciplines on the domestic content requirement. It could be either through an understanding introduced in the agreement on TRIMs or through a clear enabling amendment.
The subsidies which are generally prevalent in the developed countries, for example, those for research and development, development of disadvantaged regions and adaptation to environmental standards, are made non-actionable in the Subsidies agreement. But the subsidies which are generally used by developing countries for development of their industrial production and export have not got this favourable dispensation.
Such subsidies of developing countries, which are used for product development and export development should be made non- actionable. It will need specific addition of this provision in the agreement.
Over the last 15-20 years, anti-dumping has been used by the major developed countries as an important instrument of protectionism. It has resulted in severe harassment of the developing countries. Even on slender grounds, investigations against them get started. Even if these may get terminated or end in negative finding of dumping or injury, their exports suffer adverse effects, because the resulting uncertainty discourages importers and exporters from contracting future transactions. In the case of most of the developing countries, the trading links are fragile, hence all these may result in permanent damage.
The rules relating to anti-dumping are very complex and often based on the practices of major developed countries. The developing countries find it very costly to defend themselves against the allegations of dumping before the designated authorities in other countries. Often they have to engage the legal experts of developed countries for this purpose which is very expensive. The collection of facts and sourcing of facts in these countries is also very cumbersome and costly.
Another basic problem is that the subject of anti-dumping has been kept out of the purview of the normal dispute settlement process of the WTO, since the role of the panels in such cases has been severely curtailed.
However, it will be dangerous to get attracted by the suggestion that the process of anti-dumping should be totally removed from the WTO system. In fact, now developing countries themselves may need this provision more and more to protect their industry against predatory practices of foreign firms, in particular, the big multinational firms. Since they are now in the process of bold liberalization of their import regimes, the fear of anti-dumping practices of the large firms of major developed countries is enhanced, particularly in the light of high under-utilized capacities in several industries in those countries.
A three pronged approach will be necessary. First, the anti-dumping cases should be brought under the normal dispute settlement mechanism. Second, the cost on developing countries either as defendants in anti-dumping cases or as initiators of these cases should be significantly reduced. Third, the domestic industry in developed countries should be discouraged from initiating the process on inadequate grounds. The following suggestions may be relevant.
I. Article 17.6 of the agreement on anti-dumping should be removed.
II. There should be some presumptions regarding the non- existence of dumping in cases where allegations are against the imports from developing countries. Certain parameters and criteria on this line should be worked out. It would mean that no dumping process can be initiated if these parameters and criteria are satisfied.
III. Similarly, there should be some presumption about the existence of dumping in cases where the developing countries are the importers and developed countries are the exporters. An example of presumption is there in the case of subsidies, where certain practices of developed countries are presumed to cause serious prejudice.
IV. If the domestic industry in a developed country is found to initiate the anti-dumping process without adequate grounds repeatedly, it should be penalized. Items I to III will need inclusion of appropriate provisions in the agreement, whereas Item IV may only need a decision in the Committee on Anti-dumping, calling upon countries to have suitable penal provision in their domestic law.
BALANCE OF PAYMENT PROVISION
What would constitute a balance of payment (BOP) problem has not been specified in Article XVIIIB or in the Uruguay Round Understanding. The BOP Committee is guided in this respect by the report of the International Monetary Fund. Normally the foreign exchange reserve, the net inflow or outflow and the past pattern of import requirements are taken into account. The composition and nature of the reserve or inflow of foreign exchange does not usually get considered. It results in a very unrealistic picture of the BOP position at times. The reserves or the inflows may be comparatively high and may appear to be comfortable, but in reality the situation may be very fragile because of the uncertain nature of the reserves or the inflows. For example, there may be high reserves or inflows because of portfolio investment or short term deposits; but these may not give any stability to the BOP situation, and the country may not be able to plan any development strategy based on such uncertain and undependable reserves and inflows. It is not realistic to assess the BOP situation based mainly on the total reserves and inflows of foreign exchange.
Further, the past foreign exchange requirement may not represent a realistic need for the future as the need will depend very much on the future developmental programmes of the country.
I. There should be an understanding that the composition and the nature of the reserve and inflow should have heavy weightage in consideration of the BOP situation of a developing country. The reserves and inflows which are of uncertain and short-term character should be kept out of the consideration of the BOP situation.
II. In considering the need of foreign exchange for the future, the prospective developmental programmes should have much greater weight than the historic trend of the import requirement.
All that is needed to carry out these suggestions is that there should be an understanding in this regard in the BOP Committee.
TARIFF PEAKS AND TARIFF ESCALATION
Tariffs in developed countries on the products of export interest to the developing countries are still very high compared to the average tariff on industrial products in these countries. Further, there are still instances of tariff escalation in many product chains of relevance to the production and export of developing countries.
Developed countries are already committed in Article XXXVII of GATT 1994 to "accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less developed contracting parties....which differentiate unreasonably between such products in their primary and in their processed forms". They are also committed to "accord high priority to the reduction and elimination of fiscal measures which would hamper...significantly the growth of consumption of primary products, in raw or processed forms, wholly or mainly produced in the territories of less developed contracting parties".
It is necessary that they reduce the peak tariffs on such products and eliminate tariff escalation on the product chains of interest to developing countries. Procedurally what is needed is that the developed countries amend their tariff schedules accordingly.
In the area of Services, the negotiations on sectors like financial services and telecommunication services, which are of major importance to developed countries, have been pursued vigorously, and agreements have been concluded. But the subject of the movement of labour, which is of particular importance to developing countries, was given only a brief consideration, and the negotiation was closed quickly.
The agreement on services specifically prescribes liberalization of market access in sectors and modes of supply of export interest to developing countries. Besides, in sectoral negotiations, it is prescribed that developing countries will have flexibility for opening fewer sectors and liberalizing fewer types of transactions. In actual practice, however, the major developed countries have been asking for high degree of liberalization from developing countries.
I. The negotiations on the liberalization of movement of labour should be continued with special vigour with the aim of arriving at an agreement for significant liberalization in this sector, taking into account the special problems of developing countries.
II. There should be a review of the implementation of the above provisions regarding the developing countries. For future negotiations, modalities should be worked out as to how these provisions will actually get implemented and not ignored.
All these need decisions in the Council for Services, and no change in the agreement.
TRADE RELATED INTELLECTUAL PROPERTY RIGHTS (TRIPs)
The big corporations of developed countries have been taking away the natural biological resources of developing countries and, with slight changes, have been patenting the products. No compensation is generally being paid to the indigenous population which has nutured these resources for a very long time.
Often, some corporations of the major developed countries have patented the naturally occuring objects of developing countries or the uses of these objects which have been in actual practice in these countries for a very long time.
All this is made possible as the agreement on TRIPs does not prescribe what cannot be patented. It only says what must be an allowed patent and what may be or may not be an allowed patent. This unbalanced treatment results in grave loss and disadvantage to the developing countries.
In such cases, the developing countries find it difficult to file their objection to the applications for patents in developed countries, as very often they are not aware of such applications having been made. In several cases they come to know about it only when the patent has been registered. It is indeed difficult for developing countries to establish a comprehensive information system to have knowledge of such applications. Besides, even if they come to know about it, they find it extremely difficult and costly to make an effective representation before the authorities in developed countries. These authorities often demand some evidence in the form of publication of papers and so on for proving "prior knowledge". It creates tremendous problems, as the knowledge about traditional materials and their uses get generally passed on by word of mouth rather than through academic publications. Very often this type of evidence does not carry weight in developed countries, and thus developing countries find it difficult to prove "prior knowledge" of these traditional materials and their uses.
Even though the objectives and principles laid down in the agreement clearly speak about the promotion of technology dissemination and also of public interest in sectors of vital importance to technological development, there is no operative provision to put these objectives and principles into actual practice. It can, of course, be presumed that inclusion of these principles and objectives enables countries to take measures in the nature of putting appropriate conditions on the IPR holders; but explicit enabling provisions in the agreement to this effect is desirable to remove any confusion.
I. There should be a stipulation in the agreement that patent right must not be granted for naturally occuring plants and animals or their parts or the uses of plants, animals or their parts.
II. Similarly, there should be a stipulation that genetically transformed plants and animals or any such genetic transformation process must not be covered by patent right.
III. It should be clearly mentioned in the agreement that developing countries may put such conditions while granting patent right as they may consider appropriate for dissemination of technology or for technological development.
IV. There should be an easy mechanism for the developing countries to know about the applications for patent for naturally occuring materials or their uses or their transgenic forms. Some form of obligation for the patenting authority or the applicant should be worked out.
V. There should be a provision that the patent authorities should not ignore the evidence of knowledge passed on by word of mouth and they should not insist on evidence through publication of academic papers and so on.
Items I and III would need introducing specific provisions in the agreement, while items IV and V may need only an appropriate decision in the Council for TRIPs. (Third World Economics No. 184/185, 1-31 May 1998)
(The author was formerly India's Ambassador and Permanent Representative to GATT. He was also the Director of International Trade Programmes in UNCTAD. The above paper was presented at a TWN-organized seminar on "Current Issues on Trade, the WTO and Developing Countries" in Geneva, 29-30 April 1998.)