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TWN Info Service on WTO and Trade Issues (Feb19/12)
15 February 2019
Third World Network


China, India respond robustly to US paper on “differentiation”

Published in SUNS #8846 dated 14 February 2019

Geneva, 13 Feb (D. Ravi Kanth) – China and India have offered a robust response to the United States over its attempts to “differentiate” among developing countries on which none of them could avail of special and differential treatment (S&DT) at the World Trade Organization.

In a joint draft paper, India and China have outlined why no one among the developing countries must be left behind in continuing to avail of S&DT particularly given the worsening “development divide” in all areas between the developing countries of the South and the developed countries of the North.

Over the last two years, the US has stepped up its multi-pronged assault on all central pillars of the WTO multilateral trading system: its most-favored nation (MFN clause) by imposing unilateral duties under the US trade law, Section 232 security-related provisions, the principle of non-discrimination by selective imposition of duties despite the scheduled commitments, the abolition of the Appellate Body (AB) in the dispute settlement system by blocking the selection of four members to fill vacancies on the AB, and the multilateral negotiating function based on the principle of consensus among others by selectively pushing plurilateral agreements in services and now electronic commerce.

In a paper circulated at the WTO on 16 January, the US has launched its latest attack on the WTO’s core pillar of S&DT through “differentiation” so as to ensure that China, India, Brazil, South Africa, and Indonesia among others are removed from the S&DT bracket.

In its 45-page paper, the US has called for “differentiation” among developing countries because of the “economic tides” and “great strides” made in the years since 1995. The US has claimed that the WTO remains stuck in an outdated construct of “North-South division, developed and developing countries” that fails to reflect the realities of 2019.

India’s trade envoy Ambassador J S Deepak had informed the participants at a meeting of the informal group of developing countries (IGDCs) on 11 February that China and India will circulate their joint paper as to why no one among the developing countries must be left behind for availing S&DT to ensure inclusiveness.

In their 38-page draft paper, China and India have argued that “there is a huge development divide between the developing and developed Members of the WTO, not only in aspects of economic development level, industrial structure and competitiveness, regional balance, but also in education, social security and the ability to effectively participate in international governance.”

Notwithstanding the significant progress achieved by developing Members since the creation of the WTO in 1995, China and India said “the old divides have not been fully bridged or even have been widened, while new divides, such as those in the digital and technological areas, continue to emerge.”

Without naming the US, which has now launched a trade war against China over the alleged theft of intellectual property and mandatory transfer of technologies, China and India have argued in their draft paper that “it is inappropriate, if not inhumane, to measure a member’s development level with select gross economic and trade statistics, so as to deny the divide between developing and developed Members, and to request the former to abide by absolute “reciprocity” or superficial “fairness”, essentially depriving the developing Members of their right to develop.”

Contrary to the repeated US claims that China’s accession to the WTO has made it a powerhouse with huge trade surpluses, “the WTO rules-based system has helped the growth of trade but has not made it equitable,” China and India have maintained.

At the WTO and in the global trading system, including at forums such as the G20, the developing countries are confronted by “capacity constraints” since they lack “human resources with capable negotiation skills, a well-functioning intra-governmental coordination mechanism, and sufficient social participation in and support to trade negotiations,” the joint paper has suggested.

Consequently, the developing countries are unable to overcome these deficiencies that “diminish not only the ability of developing Members to negotiate, but also the efficiency and effectiveness of translating negotiation outcomes into their domestic economic growth.”

It is against this backdrop, China and India argue, that the S&DT was made one of the “cornerstone” principles of the GATT (General Agreement on Tariffs and Trade).

Therefore, “the S&DT principle was meant to be the main instrument for addressing the development divide and capacity constraint of developing Members, to help them achieve growth, expand employment and reduce poverty through trade,” China and India argued.

Moreover, “the current S&DT provisions in the WTO agreements are rules formulated through negotiations and compromises, not charities granted by developed Members,” China and India maintained.

Besides, the S&DT provisions remain only best endeavour clauses. The developing countries led by India and South Africa among others have called for making the S&DT provisions effective and binding as part of the implementation issues in the Doha Development Agenda.

After agreeing to the implementation issues, the developed countries led by the US and the European Union had opposed vehemently discussing any improvements for making S&DT provisions effective.

“In contrast, it is developed Members that have reaped substantial benefits by taking advantage of the “reverse S&DT,” China and India maintained.

Worse still, the developing countries who acceded to the WTO since 1995, including China, made “tremendous efforts, significantly contributed to upholding the core values of the WTO including free trade, openness and non-discrimination; supporting the rules-based multilateral trading system; and maintaining a transparent, stable and predictable global trade environment,” the joint paper pointed out.

China and India reminded the US that “the dichotomy of developed and developing Members is frequently used by almost all International Organizations to describe the structure of today’s global economy.”

The underlying rationale behind the classification methodologies is to demonstrate “the constraints and thresholds that divide developed and developing Members”. Further, the rationale adopted by the United Nations and various inter-governmental organizations clearly suggests that “there are structural features behind the UN classification that distinguish countries in terms of their development challenges” and “these features form the basis on which countries classify themselves and are adapted to the various mandates, functions and statistical work of the International Organisations.”

In sharp contrast, “for the WTO, the status of developed and developing Members are reflected in the bargaining process, and incorporated into the final rules themselves.”

Therefore, “the self-declaration approach has proved to be the most appropriate for the WTO, which best serves the WTO objectives,” China and India have maintained.

The joint paper by China and India has argued that despite making significant progress, the “development divide” persists and the developing countries have not anywhere near catching-up with the developed Members.

Following the trade war launched by the US against China, the constant refrain in the US media and trade establishment is that China would overtake the US in the next couple of years in areas such as Artificial Intelligence and Robotics.

Serious analysts, however, challenged the thesis advanced by the American media and establishment that China is far apart in coming close to the US in high-technology areas.

Against this backdrop, the joint paper has maintained that “the gap between the developed and developing Members appears to have actually widened over time, instead of getting reduced.”

Arguably, “the development divide, which was taken note of in mid-1960s in Part IV of the GATT, continues to remain relevant today – perhaps even more relevant.”

“Attempts at ignoring the need for S&DT provisions, or diluting it, is fraught with the risk of making future negotiations in the WTO even more difficult than today,” China and India warned.

Further, the standards of living in most of the developing countries fail to match those in the developed countries despite making progress.

Little wonder that “the gap between the developed and developing Members” is manifested in two ways. “First, with reference to an indicator, the difference in value between the developed and developing Members widens over time; and second, even if the difference in value does not widen over time, the gap between the developed and developing Members during a time period is substantial,” the joint paper has argued.

China and India offered a number of indicators that conclusively suggests that “the gap between the developed and developing Members has remained substantially high” while “in many cases the gap has considerably widened.”

“Besides, the essence of development is the human being,” China and India maintained. “Hence, per capita indicators must be given the top priority when assessing the development level of a country,” China and India argued.

“In WTO agreements, all the indicators used to assess development are based on per capita calculation. For example, in Article 8.2 (b) (iii) of Agreement on Subsidies and Countervailing Measures (ASCM), “income per capita”, “household income per capita” and “GDP per capita” are mentioned for the purpose of measuring the economic development of a member.”

According to economic indicators such as per capita GDP (gross domestic product), people below poverty, and under-nourished population, the joint paper offered figures for the developed and developing countries, particularly China, India, South Africa, Indonesia, and Brazil to bolster its argument that the development divide had widened since 1995.

The joint paper also cited cases of reverse-S&DT in agriculture, particularly the subsidy payments in the developed countries. It showed that the domestic support per farmer in the US was $60,586, Japan ($10,149), Canada ($16,562), the European Union ($6,762), China ($863), Brazil ($345) and India ($227).

Unsurprisingly, the per farmer subsidy in the United States was 70 times that in China, 176 times that in Brazil and 267 times that in India.

In a similar vein, on trade in services, charges from the intellectual property rights, global value chains and value-added, the joint paper by China and India revealed that there is a substantial divide between developed and developing countries.

Even in other areas such as per capita use of energy, the role of banks in the financial system, the research and development capacity, digital divide, company efficiency, and benefits from globalization, the developing countries lag far behind the developed countries, the joint paper has argued.

China and India have showed how the developing countries continue to suffer from capacity constraints, particularly at the WTO due to the lack of negotiating capacity at human resources level: From the GATT to the WTO, developed Members have been in a dominant position in the initiation of negotiations, the design of rules, the assertion of rights, and even the “flexible use of rules”.

Consequently, the developing countries, due to lack of resources, are usually short of negotiators (especially experienced ones) and thus they are unable to achieve their objectives in the negotiations, as well as manage negotiation outcomes, China and India argued.

The problem is further compounded because of limited budgetary resources in developing countries. Consequently, it is often the case that negotiation officials are not able to participate in a systematic way, China and India maintained.

Also, the lack of coordinating capacity at institutional level, particularly at multilateral negotiations which involve governmental agencies of foreign affairs, economy, industry, trade and other agencies of a member, developing countries usually lack a unified policy across different departments and have difficulties in fully assessing and accurately analyzing the impacts of multilateral trade negotiations on the economic system, industrial development, among others; and formulating the national trade negotiation strategies and tactics accordingly.

“In a word, the fact is that, for the multilateral trade negotiations, developed Members are usually “well and proactively prepared”, while developing Members often “rush to respond in a reactive manner”,” China and India argued.

Hence, “there is a big asymmetry between the two in formulating multilateral trade rules due to the capacity constraint.”

“The formal “de jure” equality cannot mask the “de facto” inequality in reality,” China and India argued.

The joint paper also shows the contributions made by new members in all areas of the WTO.

Commenting on S&DT and the issue of self-declaration, China and India said that S&DT is an integral part of the WTO agreement.

The paper has pointed out that in 1947, 11 developing Members acceded to the GATT based on the same conditions and obligations as developed Members.

“To help developing Members better benefit from the multilateral trading system, the concepts of “less than full reciprocity” and “non-reciprocity” gradually emerged during 1960s, which gave birth to Part IV of the GATT,” China and India maintained.

In short, “the issue of development was explicitly addressed in that part for the first time in history.”

“Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries (“Enabling Clause”) adopted in 1979 provided a permanent legal basis for S&DT Clause 12,” according to the joint paper.

In 1986, developing Members agreed to launch the Uruguay Round and the S&DT related content was stated in the Ministerial Declaration.

“However, the negotiation outcomes were far less than expected,” China and India maintained, arguing that a prominent expert observed that, “most of the concessions and commitments have come from developing countries and very few from industrialized countries.”

In 1994, all developing GATT Contracting Parties joined the WTO, adopting the results of the Uruguay Round as a single-undertaking.

But in Article XXXVI:1(c) of GATT 1994, the Contracting Parties noted that “there is a wide gap between standards of living in less-developed countries and in other countries”, China and India maintained.

Provisions in paragraph 3 of the article specified the following: “There is need for positive efforts designed to ensure that less-developed contracting parties secure a share in the growth in international trade commensurate with the needs of their economic development”.

China and India said that “what could constitute positive efforts was specified in paragraph 8 of the article, which states that “The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties”.”

The joint paper has also demolished the US argument that “all rules apply to a few (developed countries)”, saying it “totally ignores the 70 plus year history of GATT/WTO.” It offered concrete examples of how reverse-S&DT work for the developed countries.

In conclusion, China and India maintained that “the real threats to the relevance, legitimacy and efficacy of the WTO are raging protectionism and unilateralism, the blockage of Appellate Body member selection process and the impasse of the Doha Development Round, not the self-declared development status of developing Members.”

The two developing countries asserted that “S&DT is an integral part of the multilateral trading system, and self-declaration appears to be the fairest classification approach in the WTO.”

The battle lines have thus been drawn on the continuation of S&DT for all developing countries. The paper by China and India has revealed the divide on all aspects between the countries of the North on the one side, and the developing countries in the South on the other.

It remains to be seen how developing countries close their ranks to launch a united fight to retain the S&DT.

 


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