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WTO SYSTEM MAY NOT BE SUSTAINABLE WITHOUT S & D

by Chakravarthi Raghavan


Geneva, 8 Mar 2000 -- The World Trade Organization and its multilateral trading system, both in terms of the obligations in existing agreements like Trade-related Aspects of Intellectual Property Rights (TRIPS), and new areas sought to be brought under its scope, may not be sustainable if an 'one-size-fit-all' principle is applied to the large number of its members.

In presenting this view at a WTO seminar on Special and Differential Treatment, Prof. C. Stevens of the Institute of Development Studies at Sussex, said that no country in its domestic economic policy applied the same level of obligations on all its public, but modulated them in terms of economic situations of people or the backwardness of a region of the country.

It did not make economic sense to apply a one-size-fit-all in terms of the multilateral trading system, and more so in new areas, Steven said. However, he said, the classification of the countries and the varying levels of obligations to be applied was very complex and gave rise to many problems. But it was time to begin to think of them, he added. In other presentations and interventions, India's Amb. S. Narayanan said that the various S&D provisions in existing agreements had not provided the benefits, and it was necessary to operationalism them.

On the argument (of the industrialized world) that this would upset the balance of rights and obligations in existing agreements, Narayanan said if the WTO was unable to operationalize S & D provisions, and if they did not mean anything for the developing countries, it was better to remove them, so that developing country governments would know clearly the costs of the obligations they were undertaking, and not be misled into thinking they would get S&D benefits.

Implementation problems have systemic origins and were specific, Stevens said. There were features of current agreements which gave rise to new problems of S & D and these would increase in the future. "We need to start a process of thinking on the sorts of problems that developing countries are likely to face and what sort of measures would be appropriate," he said.

The existing S&D provisions in the system had a history in terms of the process and the philosophy that impelled the negotiators to make these provisions.

There were broad groups of states sharing common characteristics and which set them apart from other groups of states. Was it desirable and feasible to apply the S & D rules according to the characteristics of these groups? Could 'one size fit all' in the WTO or was modulation still relevant?

There were three broad groups of countries, Steven said -- the industrialized countries, the least developed countries, and a group in between based on self-nomination.

Under the system now, there was modulation of commitments for market access; rules like TRIPS or export subsidies.

In terms of access to markets there were some legally enforceable provisions under S & D, and others which were not.

The preferences in market access available under S & D were being eroded by the trade liberalisation and lowering of MFN-tariffs.

But the present S&D provisions were not necessarily designed for new issues and needed to be looked into.

The idea of one-size-fit-all in commercial or economic policy was not applied by any country domestically and economic policies of most countries were based on some kinds of modulation, with relief provided to some sectors or backward regions.

As such, at the international level, the one-size-fit-all did not make sense. While it was complex to apply differential rules, a single rule or obligation applying to all participants on grounds of simplicity did not make sense either.

If new rules covering new areas were sought to be put in place, then a degree of modulation in terms of obligations of countries became appropriate.

The question remained how this modulation could be effected, a modulation that would minimise the costs of differentiation and maximise the gains. The differential treatment would make the system less transparent. But lack of modulation might make the system less sustainable.

Could the differentiation of countries be based on trade shares? Small states were inherently vulnerable and one could argue that when a country accounted for a small share of world trade, the costs to the system of providing differential obligations were much less than if the principle were extended to all countries.

For such small states, the implication could well be not in terms of providing longer transition periods, but not applying the rules at all to them.

There might be another set of countries lacking in administrative capacity to undertake and carry out all the obligations domestically, such as under TRIPS and it took these countries more than political will to implement and abide by the commitments. Such a country needed an administrative system, and a system of justice that would conform to international standards. For such countries, would it possible to identify alternatives until they built the administrative capacity -- such as requiring them only to observe the principles of MFN and National Treatment. And should the obligations to be undertaken be linked to delivery of technical support and assistance to build the administrative capacity?

There were areas in terms of market access where there was heavy protection against imports in industrialized countries. One of the benefits of a rules-based system was it enabled countries to trade in areas of comparative advantage. But if developing countries were unable to export and earn in areas of comparative advantage, then they should be able to specialise in and earn in areas where they might not have a comparative advantage, but would need to subsidise the production and exports.

Dividing countries into various groups, and providing S & D treatment for some in some sectors and not in others could prove to be a horrendous task for trade negotiators.

Amb. Federico Cuello Camillo of the Dominican Republic referred to the various proposals from developing countries for Seattle, and said it was clear that the transition periods provided to developing countries were insufficient. This was more glaring when one looked at the long transition periods that the industrialized countries had in such sectors as agriculture and textiles and clothing, while developing countries had only a 5-year transition period for TRIPS. There was also the problem of thresholds for application of subsidies agreement or anti-dumping etc, and some of the thresholds were quite arbitrary.

The S & D treatment in several agreements remained in the area of good intentions.

The Dominican Republic ambassador was also critical of the way some of the agreements had been applied against developing countries. Without mentioning the US by name, he referred to the United States' invoking of transitionary safeguards against textiles and clothing imports from some ten countries, one of which had taken the issue to the dispute process and won the case. While the safeguards against that country was revoked, it continued to be applied against others similarly placed.

The promise of S&D and special measures to enable developing countries to increase their services exports through access to information networks etc remained unimplemented, with critical information to developing countries blocked by encryption of information.

India's Ambassador S. Narayanan said that in the run-up to Seattle, the developing countries had raised three sets of implementation issues in terms of special and differential treatment. Some agreements were inherently imbalanced. In others developing countries had not seen the benefits that were foreseen. And in still others the S & D provisions remained non-operational.

The Indian representative cited the cases of the Agreements on Sanitary and Phytosanitary Measures, the Technical Barriers to Trade, Anti-Dumping and the Dispute Settlement Understanding (DSU).

The S&D provisions of the SPS Agreement, in Art.10, for taking account of the special needs of developing countries in preparation and application of SPS measures, or for phased introduction and with longer time-frame for new measures, and enabling active participation of developing countries in relevant international organizations remained unimplemented or had not been effective.

The real problem in the agreement lay in the language used (about 'taking into account') and the provisions had not benefited the developing countries.

Similarly, the provisions of Art.12.2 and 12.3 for special development and financial needs of developing countries to be taken into account in the implementation and in preparation and application of technical regulations under the TBT agreement remained at the level of best endeavour clauses and had not benefited the developing countries at all.

The Anti-dumping agreement, which in Art 15 requires 'special regard' to be paid to the special situation of developing countries before considering or taking anti-dumping measures, had not been given effect to by the industrialized countries.

In the GATT 1994, a provision that was put in for S&D treatment, namely Art XVIII:B for balance-of-payments actions, had been so interpreted by the panel and the appellate body that the special provisions to favour the developing countries were more onerous for invoking than the normal provisions in Art.XII that can be invoked by the industrialized countries. Similarly, in the Dispute Settlement Understanding, though there were provisions that could be used to enable developing countries to take a longer-time to present their case in disputes raised against them, developing countries had been unable to get any benefit.

Again, under Art.21.2 of the DSU, in terms of surveillance and implementation of rulings, 'particular attention' is required to be paid to matters affecting interests of developing country members on measures subject to dispute settlement, developing countries had found to their surprise that requests for extra time for implementation were not accepted.

Referring to the arguments advanced by the industrialized countries that the proposals of developing countries (in the preparations for Seattle) under implementation for S&D Treatment amounted to an upsetting of the balance of rights and obligations achieved in the Marrakesh Agreement, Narayanan said: "If these provisions (for S & D) do not mean or amount to anything for developing countries, it is much better not to have them."

"We (negotiators)," he added, "are using these provisions to tell our governments we will get lots of benefits. But these are non-enforceable and do not actually benefit. It is much better to tell our governments, this is the burden you will have to take in accepting these agreements.

"In making rules, let us be clear what we want to do and what we do not want to do. We should not use some ambiguous language on matters where we do not want to make a provision."

Narayanan confessed that developing countries, including his own, had not weighed the Uruguay Round package as a whole, to assess its benefits and costs, before accepting it. That said, it was necessary for the membership to look at the S&D provisions and give some meaning so that the agreements benefit developing countries and the least developed.

Referring to the views of Prof.Stevens about the 'costs of exceptions' to the system through S & D, Narayanan said they should also work out the costs of the biggest S&D benefits that the system had provided so far (to the industrialized countries), by exempting two sensitive sectors, agriculture and textiles and clothing, from the rules and disciplines of the trading system for 50 years.

"Let us take account of that cost also," he added.

In interventions from the floor, a representative of St. Lucia, agreed with Narayanan and said it was better to end the hypocrisy of S & D and do away with the S & D provisions.

The representative of the IMF trotted out some neo-liberal economics to argue that liberalisation benefited the countries that liberalized - though those advocating such theories have not been able to provide any empirical evidence to sustain and support it. A representative of the World Bank suggested that the classification of developing countries need to be looked into in terms of criteria, and that some among them with a high per capita should be 'graduated out'.

In a subsequent panel discussion, Amb. Munir Akram of Pakistan cited a number of agreements and issues to make the point that the WTO system was inherently unequal and asymmetric, and having equal obligations on unequal trading partners was inequitable.

But the European Community Ambassador, Mr. Rodrick Abbot said it was not feasible to have a system where there would be two or three groups of countries with differing obligations, but having the same benefits. The MFN was a fundamental rule of the organization and having special and differential treatment would result in a two-tier system.

Abbot used the opportunity to flag the EC pet theme these days that all these issues could only be looked at through a new comprehensive round, including new issues.

Narayanan however challenged the view that providing operationalised S&D would amount to a two-tier trading system, and said the views of the EC gave great concern to India and other developing countries. (SUNS4623)

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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