Time to level the playing field of multilateral trade: Rethinking the “differential” in Special and Differential Treatment
Sustainable Development Goal 10 calls for reduced inequality. The World Trade Organization (WTO) has sought to diminish the impact of existing inequalities between countries through special and differential treatment (SDT) for developing countries. While we do not question this underlying principle or the nexus between trade and development, the implementation of SDT is inherently flawed. Most problematically, there is no agreed definition of what constitutes a developed or developing country in the WTO system. Yet, developing countries are entitled to favourable conditions, such as the right to restrict imports to bolster certain industries, enjoy reduced tariffs on exports, and benefit from additional time to fulfill obligations. It should come as no surprise that around two-thirds of WTO Member States have self-declared themselves to be developing countries. This includes some of the world’s biggest economies, like G20 countries China and India, which casts doubt on the entire concept of SDT, even for countries that are in real need of development assistance. As a result, under many WTO agreements, a country like China - ranked the second largest economy globally - could be entitled to similar benefits as a country like Botswana, which ranks 115th in terms of GDP.
This has been a subject of great controversy, with both the EU and the US raising concerns. Most recently, the US called for urgent reform given that three of the world’s richest countries enjoy developing status in the WTO. Specifically, the US argues that many countries have grown significantly and are now hiding behind their developing status to avoid full WTO obligations. The US pointed in particular to many Member States who are part of the G20, OECD, designated ‘high income’ by the World Bank, or account for a specific percentage in global trade, but nevertheless enjoy developing status in the WTO. The EU also called for reform of SDT, stressing the need to differentiate between capacity constraints among developing countries themselves, while also pointing to the high number of OECD and ‘high income’ countries enjoying developing status.
Other countries have fiercely defended their developing country status, including India and China, claiming that any ‘attempt to dilute SDT would be in conflict with the fundamental premise of equity and fairness’ underpinning the WTO treaty framework. Moreover, China has not been enjoying many SDT benefits in practice, although it has indicated that it would never agree to a reform whereby it would relinquish its entitlement to SDT as a developing State.
The practice of self-declaration by WTO Member States has safeguarded the policy space needed for developing countries to negotiate their entry into the multilateral trading system. While the arbitrariness of this practice requires a rethink, more fundamentally it is a holistic reform of SDT that is necessary to tackle the inequality propagated by the binary classification of vastly different and multidimensional economies.
That said, the need for reform has been recognised by the WTO itself, as already discussed during the Doha Conference of 2001. At the Bali Conference of 2013, the WTO established a mechanism to review SDT provisions to make them more precise, effective and operational. However, given their sensitive and politicised nature, and due to the fact that decisions are consensus-based in the WTO, no progress has been made so far. It is unlikely that this will change any time soon given the devastating impact of COVID-19 on developing countries’ economies.
Sector-based reform of SDT
Reform would increase the credibility of the WTO, but also the integration of developing countries into a more equitable multilateral trading system. The major point of reform should be to make SDT a case-by-case evaluation based on evidence and needs. This reformed approach addresses both the concerns of developing and developed countries. Specifically, the dichotomy between developed and developing countries no longer reflects the complex global economy of today. Moreover, the case-by-case approach should be sector-based. There are many differences among developing countries themselves, and even within a developing country’s different sectors. For example, while India has a flourishing textile market, its agricultural sector is still largely developing and the majority of the population lives in poverty. Hence, SDT should reflect these various stages of countries’ development in order to achieve sustainable development.
Enhanced market access is one of the central tenets of SDT, including through the reduction of barriers to trade for developing countries. In adopting a sector-based competitiveness index, the WTO could better assess needs-based entitlement to SDT in relevant sectors. Finally, this approach should be complemented by periodic review, evaluating suitable SDT entitlements depending on the changing needs and capacities of such States. Accordingly, a decrease or increase in the level of SDT or even graduation from developing status could be considered.
Why would this reform work?
Several factors indicate that this would be possible. For example, the status for Least Developed Countries is an assigned one, determined by whether or not a country meets the threshold of certain criteria including income, economic and environmental vulnerability, and human assets. LDC status is subject to review by a UN committee and graduation. Moreover, commitments in the Paris Agreement introduced individualised implementation schedules and obligations tailored to each country’s specific needs and capabilities, rather than general obligations or a classification of countries. Finally, we have seen countries voluntarily graduate from their developing country status, like South Korea in 2020. Nonetheless, reform should ensure that graduation is based on economic evidence rather than political pressure. Indeed, this approach may inpsire greater observance of the principle of good faith in trade negotiations and support enhanced implementation of and adherence to SDT.
Reform in the WTO can be stalled by any one of its 164 Member States due to the organization’s consensus-based decision-making process. As a result, successful SDT reform requires a truly equitable solution, meeting the needs and alleviating the grievances of all Member States. Appropriately, a case-by-case and sectoral driven reform of the SDT architecture allows for the most inclusive entitlement to flexibilities while targeting inequalities in the multilateral trading system.