TWN Info Service on WTO and Trade Issues (Nov19/07)
14 November 2019
Third World Network

Major North countries bringing about state of exception at WTO
Piblished in SUNS #9016 dated 11 November 2019

Geneva, 8 Nov (D. Ravi Kanth) - Major developed countries are attempting to bring about a state of exception at the World Trade Organization for suspending the fundamental flexibilities availed by developing countries such as special and differential treatment (S&DT), non-discrimination, and the consensus principle for decision-making (on this issue), the former South African trade minister Rob Davies cautioned on Thursday (7 November).

Speaking at the South Centre during the release of his book "The Politics of Trade in the Era of Hyperglobalization - A Southern African Perspective," Davies urged developing countries to join forces for adopting common positions to enhance their "policy space" that is now under threat due to the escalating intransigent positions of the developed countries.

He expressed sharp concern over the lack of unity among developing countries for confronting the multi-pronged challenges at this juncture.

Davies said that the proposed WTO reforms are linked to the AB crisis and developing countries are being subtly told they have to accept reforms (as a sort of payment for allowing the AB to continue).

Even though some developed countries such as the European Union and Japan among others express concern over the United States President Donald Trump's trade policies, they wholeheartedly support Washington's initiatives to bring about differentiation for availing S&DT or suspending the principle of consensus-based decision-making on this issue, Davies suggested.

According to participants present at an informal trade ministerial summit convened by China in Shanghai on 5 November, the European Union has suggested that WTO members need to discuss about the continuation of the consensus principle for decision-making at the inter-governmental multilateral trade body.

Korea among others has supported the EU's call, said a participant, who asked not to be quoted.

Davies, who has been the trade minister for South Africa till June this year, said that he has argued in his book that outcomes in trade negotiations reflect "power" which depends on a number of factors such as the size of the economy, the presence of a country in the international trade, the ability of a country to mobilize its "bureaucracy" of trade diplomats in the negotiating processes, and also on the ability of a country to drive the narrative process backed by a series of think tanks.

"Trade negotiations, in short, have been driven by short-term self-interest, reflect power relations and are characterized by relativism," Davies argued in his book.

"These realities in the era of globalization and neo-liberalism, contributed to growing unevenness and increasing inequality both within and between countries," he said.

Consequently, "the new trade order driven by these processes did, however, have another result, namely, the emergence of China first as a major exporter of manufactured products and later as a serious innovator and competitor in the technologies of the 4th Industrial Revolution," Davies argued.

Much of the success of China during this period was largely due to the fact that it did not conform to the "policy "advice" proffered to a host of other developing countries, Davies said.

"Its (China's) progress was the product of a deliberate state-led industrial policy," Davies argued in his book.

"Like other industrializers before it, it [China] took advantage of export opportunities open to it, while carefully calibrating the opening up [of] its own economy," he said.

In the face of the threats to close export markets to its products, China became a proponent of "free trade," Davies suggested.

"Its prudent strategic decision in the past few years to turn to domestic consumption as a driver of development and its energetic drive to become a significant player in the technologies of the "4th Industrial Revolution" have resulted in that country becoming the second largest economy," the former South African trade minister said.

"This, plus the growing political influence of "discontents" in the developed world has dramatically changed the political economy of the global trade landscape," Davies added.

Consequently, "we are now at a point where the crisis of neo-liberalism, evident at least since the onset of the global recession, has now become an existential crisis for the rules-based multilateral trading system itself," Davies said.

He said it would be a worst prospect for any country to be at the bottom of the global division of labour in the evolving Information Age.

He spoke about the developments that began unfolding from the WTO's third ministerial conference in Seattle (in 1999) to the Doha Round (in 2001), in which he played a major role articulating the interests of developing countries in agriculture and market access for industrial goods.

While the negotiations in the Doha agriculture package on domestic support focused more on substantial reduction in the trade-distorting domestic subsidies, the outcome in industrial tariffs was aimed at harmonizing the industrial tariffs in the developing countries with the existing levels of tariffs in the developed countries through the controversial Swiss formula, Davies said.

The Swiss formula required developing countries to cut tariffs sharply as compared to the developed countries, thereby, undermining the principle of special and differential treatment and the principle of less-than-full reciprocity as agreed in the Doha Round.

Little wonder that the proposed outcomes in agriculture for developed countries were replete with carve-outs, and the developing countries were presented with a "one-size-fits-all" approach in the market access for industrial goods, he said.

Ironically, even the G20 coalition of developing countries "did not shoot for the moon," Davies argued, implying that the developing countries were offering flexibilities to the developed countries even though they were denied mandated LTFR (less-than-full-reciprocity) in the non-agriculture market access.

He mocked the manner in which South Africa - which had bound its tariffs as a developed country under the apartheid regime in the Uruguay Round - was pushed into a corner by the developed countries for negotiating some country-specific flexibilities in total disregard to the Doha mandate.

Davies said that erroneous estimates of gains from trade agreements were constantly manufactured to entice developing countries into signing agreements such as the Trade Facilitation Agreement.

On the "$1 trillion value" projected from the Trade Facilitation Agreement that was signed at the WTO's ninth ministerial conference in Bali, Indonesia, he asked, "where is the one trillion?"

From hegemonic multilateralism to hyper-mercantilism now, the developing countries have paid for trade liberalization without securing commensurate gains, he suggested.

There is a "linkage of AB [Appellate Body] appointments and reforms of the WTO," he said.

The developed countries are now resorting to "post hoc ergo propter hoc" ("after this, therefore because of this") logic to deny special and differential treatment to developing countries since China benefited most from the S&DT in its industrialization strategy, the former South African minister said.

Effectively, the ladder that enabled China to adopt a developmental path of incremental and progressive changes, is now being kicked away by the developed countries so as to deny other developing countries from adopting the Chinese strategy, he added.

In short, the developing countries are now being denied "policy space" through the WTO reforms involving differentiation for availing S&DT for several developing countries, he suggested.

The developing countries, he said, should remain careful about what they agree to at the trade ministerial meetings, suggesting that "we agreed the two year moratorium for e-commerce at the Buenos Aires meeting which expires in December."

He said the moratorium not to levy the customs duties on electronic transmissions is special and differential treatment for GAFA - Google, Amazon, Facebook, Alibaba - and Microsoft among others.

In a similar vein, Davies said decisions taken at the ministerial meetings may not be legally binding, but they may be politically binding, like the paragraph 30 of the Nairobi ministerial declaration.

The controversial paragraph 30 of the Nairobi ministerial declaration, which is often used by the US, EU and Japan among others to declare the Doha Round is dead, says: "We recognize many members reaffirm the Doha Development Agenda and the Declarations and Decisions adopted at Doha and at the Ministerial conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis. Other members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations. We acknowledge the strong legal structure of this organization."

The Fourth Industrial Revolution based on big data, artificial intelligence, and non-regulation of global internet of things might offer benefits here but they will widen the inequalities sharply and cause unmitigated disruption in economic and political spheres, he said.

Effectively, the developing countries are forced to confront "asymmetries" of knowledge and power in the global trading system, where the winner takes it all while a large majority of the world population remain locked up in poverty and inequality, Davies argued succinctly.

Richard Kozul-Wright, the Director of the Globalization and Development Strategies Division at the United Nations Conference on Trade and Development (UNCTAD), praised Rob Davies for his sharp assessment of the political economy of global trade, saying that the neo-liberalism and financial liberalization have wrecked the world economy.