TWN Info Service on UN Sustainable Development (Mar19/01)
5 March 2019
Third World Network

US suffers major setback over proposal to deny S&DT to South

Published in SUNS #8858 dated 4 March 2019

Geneva, 1 Mar (D. Ravi Kanth) – The United States suffered a humiliating setback Thursday (28 February) at the World Trade Organization on its proposal to deny special and differential treatment (S&DT) to several developing countries.

More than 100 developing and least-developed countries asserted that the S&DT is a legitimate right open to all developing countries and enshrined in the Marrakesh Agreement that established the WTO, trade envoys told the SUNS.

At a meeting of the WTO’s General Council, many developing and least-developed countries rallied around a joint paper circulated by China, India, South Africa, Venezuela, Kenya, Cuba, Bolivia, Laos, Pakistan, and the Central African Republic on the “Continued Relevance of Special and Differential Treatment in favour of Developing Members to promote development and ensure inclusiveness.”

The coordinators of the ACP (Africa, Caribbean, and Pacific) group, the African Group, the least-developed countries, and trade envoys of China, India, senior trade officials of South Africa, Uganda, Turkey, Egypt, Bolivia, Cuba, and many other developing countries rejected the American draft decision to deny S&DT to several developing countries.

While the developed countries – Norway, New Zealand, Canada, Switzerland, Australia, and the European Union – suggested differentiation, albeit with varying nuances, only the EU came to the support of the US proposal that attempted to drive a wedge among developing countries on the one side and the least-developed countries on the other, said a trade envoy who asked not to be quoted.

During the marathon GC meeting, China, India, and South Africa systematically demolished the US paper, “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Irrelevance”, as well as the US “Draft General Council Decision on procedures to strengthen the negotiating function of the WTO,” saying that it is a blatant attempt to weaken the multilateral negotiating function of the WTO by denying S&DT flexibilities to developing countries on an unsustainable framework.

The US trade envoy Ambassador Dennis Shea introduced the US paper and the draft decision, arguing that China, India, and South Africa among others made rapid progress in several trade-related areas over the past 20 years while availing S&DT flexibilities.

The American envoy said that countries like Chad and Benin which failed to make much progress cannot be compared to China, India, and South Africa, suggesting that only LDCs deserve S&DT in negotiating the future agreements but not major developing countries, said a trade envoy, who asked not to be quoted.

Ambassador Shea said China and India have made tremendous progress in various sectors and also provide tens of billions of dollars of farm subsidies that are distorting global trade. He claimed that the joint paper by China, India, South Africa, and Venezuela along with six other countries did not provide a correct account of the many trade-policy achievements made by them.

In a detailed response through several interventions, China’s trade envoy Ambassador Zhang Xiangchen said the American paper “neglects the gaps between developing and developed Members in terms of per capita income, science and technology, economic structure, regional balance, social administration, quality of development as well as differences in their stages of development.”

While the US “analytical paper is in itself flawed, the proposed actions [by the US] in the form of draft decision of General Council certainly lack legitimacy, and can only be a groundless “hanging garden” floating in the air,” the Chinese envoy said.

China said that the US paper “selectively picks indicators” to exaggerate the level of development of some developing countries so as to challenge “the practice of self-declared development status of the WTO.”

In addition to economic and social disparities between the developed and developing countries, the developing countries face “tremendous capacity constraints” in participating in the multilateral trading system, the Chine se envoy said.

Ambassador Xiangchen said “special and differential treatment is a key policy tool for addressing development divides and capacity constraints, and therefore is indispensable for the multilateral trading system.”

China, said Ambassador Xiangchen, is “proud” of its “hard-won achievements” but remains “still the largest developing country in the world.”

“Special and differential treatment is an exception from general trade rules” but S&DT is not “charity granted by developed members,” the Chinese envoy said.

The S&DT is “the result of the painful negotiations in which developing Members have paid a high price in exchange, and therefore an integral and indispensable part of the multilateral trade rules,” Ambassador Xiangchen argued.

After years of unfair treatment meted to developing countries in international trade in the multilateral trading system, the S&DT was negotiated by developing countries. “Taking agriculture as an example, per capita agricultural subsidies of the US is 70 times that of China, 176 times that of Brazil and 267 times that of India,” the Chinese envoy pointed out.

“As pointed out by an UNCTAD expert, a simple reciprocal market opening amongst the countries [as demanded by the US in its draft decision] with different levels of economic power is in itself a discrimination,” Ambassador Xiangchen maintained.

He said that S&DT was aimed at correcting “historic discrimination, from Enabling Clause to Agreement on the Textiles and Clothing, developing Members fought hard to get special and differential treatment in negotiations.”

Developing countries, said Ambassador Xiangchen, made significant concessions in the Uruguay Round, particularly in trade in services and intellectual property rights, to keep textile trade within the multilateral rules and reduce distortions in agricultural trade.

Against this backdrop, “abandoning self-declared development status is handing out our right to pick the right shoes for ourselves,” the Chinese envoy maintained.

In response to the US trade envoy’s comment that the joint paper by the ten countries wrongly attributed the quotation – “there is nothing more unequal than the equal treatment of unequal people” to Thomas Jefferson, the Chinese envoy said “you know Thomas Jefferson better than I do, just as I know Confucius better than you do … So we should have avoided selling water on the river. We can modify our paper [by ten countries] to use another quote of Thomas Jefferson that you mentioned, “Truth is the proper and sufficient antagonist to error”.”

Ambassador Xiangchen said the failure of the WTO negotiating function, as pointed out by the Indian trade envoy Ambassador J S Deepak, “is not caused by special and differential treatment or self-declaration, but by the capacity constraint of developing Members and the unreasonable power structure of the multilateral trading system.”

The fundamental question raised by the US is whether the WTO should from no won, limit special and differential treatment for developing Members or more precisely for a certain group of developing members, and would be tantamount to force them on “to a narrow path that these developing Members have to take to keep up in a structurally biased system,” Ambassador Xiangchen argued.

S&DT, according to the Chinese envoy, is four “L’s”: “less” in terms of the scope of concessions, “lower” in terms of amount of concessions, “longer” in terms of timeframe for concessions and “later” in terms of the start date of concessions.

Often, the proponents seeking “differentiation” for availing S&DT to developing countries failed to see “the structural imbalance in the multilateral trade negotiations” such as “who sets the negotiating agenda, who leads the negotiation process, who has more in shaping the negotiation outcome?”, the Chinese envoy said.

Small wonder that “some developed members have certain de-facto privileges in the negotiations and they have made good use of these privileges,” Ambassad or Xiangchen maintained.

“If such imbalances continue, the only way for developing members to partially remedy the imbalance is through special and differential treatment,” the Chinese envoy contended.

“Therefore, if the WTO cannot address the fundamental issue of negotiating power structure and take real reform measures, any attempt to deprive developing Members of their right to special and differential treatment is unjust and mission impossible,” the Chinese envoy cautioned.

During his interventions, the Indian trade envoy Ambassador J S Deepak pointedly told his US counterpart that the US approach to development is “one-sided and arbitrary”.

Moreover, the US approach “can cause lasting damage to the multilateral trading system,” Ambassador Deepak maintained, arguing that “Special and Differential Treatment (SDT) for developing Members and LDCs, as provided for in Part IV of the General Agreement on Tariffs and Trade, is an unconditional right.”

Further, Part IV “recognizes the enormous difference in the levels of development between different Members of the WTO, and allows developing Members the space to formulate their domestic trade policy, in a way that helps them to reduce poverty, generate employment and integrate meaningfully into the global trading system.”

Little wonder that “over the past five decades, this has formed the basis for the concept of S&DT and less than full reciprocity under the GATT and WTO,” the Indian trade envoy said.

He challenged the US argument about “a significant re-ordering among countries and increasing economic differentiation among them.”

Ambassador Deepak said “while developing Members have achieved progress on some economic indicators since the inception of the WTO, the old gaps in the levels of development are far from being bridged, and in some areas, have even widened.”

He pointed out that “new divides, especially in the digital and technological spheres, are becoming more pronounced.”

The US paper’s attempt “to cherry-pick and employ selective economic indicators to deny the persistence of the divide between developing and developed Members are profoundly insidious.”

More disturbingly, the “US proposal is extremely divisive,” said Ambassador Deepak. “In addition, the proxy parameters that they have chosen for development are arbitrary and the language in their proposal is broad enough to allow f or new conditions to be brought in to phase-out S&DT on a sector-specific basis, even for Members who fall outside the ambit of the four criteria mentioned in the US paper,” the Indian envoy said.

Clearly, the US strategy “appears to be a strategy to ultimately terminate special & differential treatment at the WTO.”

The US narrative on S&DT is flawed, he said, adding that UNCTAD has pointed out that S&DT provisions in various WTO agreements “are imprecise, unenforceable and in the form of “best endeavour clauses”.”

And “therefore the assertion that onerous SDT obligations are making the WTO irrelevant is untenable,” said Ambassador Deepak, arguing that “it is also important to note that though Members can declare themselves as developing, their specific rights and obligations are still subject to negotiations.”

The Indian envoy exposed the flawed arguments on S&DT, saying “nothing could be farther from the facts as evident from Agenda item 8 of today’s GC where extension of an exemption is being sought for the US [for the Jones Act].”

When asked whether the exemption granted to the US under the Jones Act amounted to reverse-S&DT, the WTO spokesperson Keith Rockwell said it is only an “exemption”.

[The “exemption” for the Jones Act was a US demand to agree to the UR agreements, and has been repeatedly continued since inception of the WTO in January 1995. SUNS]

The Indian envoy said “there exist several “reverse SDT provisions” in the covered agreements that give explicit carve-outs to developed Members and benefit them at the expense of developing Members.”

“Let me remind the United States that it sought and benefited from the waiver from some of the key obligations especially in the area of agriculture and textiles, sectors of export interest for LDCs & developing countries, under the GATT for almost 40 years,” the Indian envoy argued.

He said “it is factually incorrect to blame the self-declaration of development status as the reason for the lack of progress in negotiations.”

“Rather a “self-declared paralysis” has occurred in the WTO due to the inability of the developed Members to abide by the agreed negotiating mandates of the Doha Round and the progress made thereunder,” said Ambassador Deepak, pointing out that “this is in spite of the fact that the Doha Round was launched with the primary objective of bridging the trust deficit between developing and developed Members and increasing the opportunities for developing Members to integrate meaningfully into the global trading system.”

He quoted the former US Trade Representative Ambassador Robert Zoellick who had said that the Doha Round, with development as its core, would be “the starting point for greater development, growth, opportunity and openness throughout the world.” Sadly, “this is a promise that has remained unfulfilled.”

Ambassador Deepak said India can never agree to the US draft GC decision to deny S&DT based on a selective criteria.

He argued that “self-declaration of development status has been a long-standing practice since the early days of the GATT, and therefore it became a part of the customary practices to be followed by the WTO within the meaning of Article XVI:1 of the Marrakesh Agreement.”

“Depriving developing Members of the policy space that is a right and that was enjoyed by each developed Member in their process of structural transformation and economic growth, would be a gross violation of the basic tenets of equity and justice and would strike at the very legitimacy of the rule-based system,” Ambassador Deepak warned.

Ambassador Deepak made five points to drive home the message that S&DT is a fundamental right that all developing countries need to avail:

i. Despite the impressive economic progress made by many developing Members over the past 2-3 decades, the gap in the standards of living with the developed Members persists and has actually widened in respect of many parameters.

ii. Developing Members continue to confront many formidable challenges, which provide a strong argument for the continued relevance of special and differential treatment in their favour. If the multilateral trading system is unable to respond to their needs, some of the developing Members may not retain a high stake in the system.

iii. A regime based on complete reciprocity will mainly benefit those Members who are better endowed with capital and technology. Developing Members, who face significant challenges and constraints, will not be able to benefit from such a regime.

iv. SDT provisions should be viewed as an instrument to enable developing Members to decide what obligations to undertake and over what time frame.

v. In the past, the GATT/WTO Membership exhibited realism and a strong sense of fairness in agreeing to SDT provisions as an unconditional right for developing Members. “In his plenary statement at the Doha Ministerial Conference, Pascal Lamy, then EU Trade Commissioner, emphasized that development belongs “right at the heart of the multilateral trading system”.”

Ambassador Deepak warned that “if future negotiations do not adopt a similar approach then it would be a certain recipe for intractable deadlock in negotiations.”

He said “it is in the combined interest of the entire WTO Membership to avoid this eventuality.”

In a hard-hitting intervention, South Africa said data presented in the US paper “paint a highly distorted picture that does not reflect the real state of development divide.”

The South African trade official argued the developing countries who suffered premature de-industrialization are facing massive unemployment and poverty problems.

The principle of S&DT, said South Africa, was “conceived to allow developing countries a degree of flexibility to deploy such policy measures to support their growth and industrial development within the framework of global trade rules.”

Nevertheless, S&DT has proven inadequate, the South African official said, pointing out that the African Group made proposals for making S&DT effective.

The US draft decision “targets 34 developing countries explicitly but opens the possibility to deny S&DT to all developing countries and LDCs when it states categorically that “nothing in this Decision precludes reaching agreements that in sector-specific negotiations other Members are also ineligible for special and differential treatment”,” South Africa said.

Therefore, “South Africa will not waive its right of self-declaration of its development status and to SDT,” the South African official said.

In conclusion, judging by the discussions at the GC meeting, the US draft decision brought about unity among developing and least-developed countries to safeguard S&DT provisions. But it is clear the developed countries led by the US and the European Union will raise this issue in the coming days in one form or the other.

[The US and the EU, during the Uruguay Round negotiations, made similar efforts, intervening in almost every negotiating group to argue that while many of the least developed countries needed special and differential treatment, many developing countries like India and Brazil had made considerable progress and were competitive. At that time, Bangladesh (which was coordinating the LDCs ), taking the US and EU at their word, would introduce amendments to formulations for S&DT for developing countries, with words “and especially least developed countries”.

[After the conclusion of the Uruguay Round negotiations and the signing of the Marrakesh Agreement, at a consultation meeting of experts convened by UNCTAD, the Bangladesh representative (Mr. Talukdar) said that though the main protagonists for the Round, the US and EU, had promised special and favourable treatment to LDCs, when it came to tariff negotiations, it was Bangladesh’s experience that the US and EU made no concessions and had demanded full reciprocity. SUNS]