By Dr Chandrakant Patel

The author is the Switzerland representative of Southern and Eastern African Trade Information and Negotiations Institute (SEATINI), a leading think-thank. This article is an edited version of his paper distributed at the South Asian Conference on Trade and Development, organised by Centad in New Delhi on December 19-20, 2006.

Special and Differential Treatment (SDT or S&DT) is based on the premise that developing countries are disadvantaged in their participation in international trade. Therefore, multilateral agreements involving them and developed countries must take into account this asymmetry in specifying their rights and obligations.

A related premise is that trade policies that would promote sustainable development in developing countries are different from those in developed economies. Consequently, policy disciplines applying to the latter should not apply to the former.

Then again, the varying capacities of developing countries to implement the obligations under different World Trade Organisation (WTO) agreements, let alone benefit from them, would suggest a differentiated approach.

As developing countries began the process of accelerating their development and targeting improved trade performance as a key instrument of the process, it became clear that the existing rules of the General Agreement on Tariffs and Trade (GATT), the precursor of the WTO, warranted changes in a number of areas, notably for improved and preferential market access, greater flexibility in implementation and non-reciprocity in trade relations with developed countries.

Article XVIII (governmental assistance to economic development) was revised to include a specific provision to allow countries at “an early stage of their development” to adopt quantitative restrictions on imports whenever monetary reserves were deemed to be inadequate in terms of the country’s long-term development strategy (Article XVIII-B).

Additionally, the Article was revised to allow for the imposition of trade restrictions (both tariffs and quantitative restrictions) to support infant industries, with a view to raising living standards (XVIII-C).

In dealing with commodity problems, a key concern of many developing countries, the most that could be agreed was the conduct of an annual review of trends and developments in commodity trade and the convening of an inter-governmental meeting.

Despite these revisions, developing countries continued to feel that their trade concerns were not being effectively addressed in the GATT.

In 1979, the ‘Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries’ was established. Commonly known as the Enabling Clause, it gave a stronger legal basis for the special and differential treatment of developing countries within the rules of the multilateral trading system. While the clause gave formal embodiment to the concept of special and differential treatment, it continued to do so in a discretionary and non-binding manner.

Main features of the current S&DT regime

Today, WTO agreements contain over 70 different provisions for developing-country members as a group. There are additional references to least developed countries (LDCs) that, for example, benefit from longer transition periods in the implementation of certain agreements such as Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Thus, in parallel with increased participation of developing countries in the Uruguay Round agreements, there has been an increase in S&DT provisions. To be sure, many of the provisions are hortatory and their implementation difficult to evaluate; others, although also of a general nature, have given rise to concrete programmes such as the Generalised System of Preferences (GSP). Still others are very specific and relate to a particular aspect of developed or developing country policy.

• Provide preferential access to their markets.
• Provide technical and other assistance to permit them to meet their WTO obligations and otherwise enhance the benefits developing countries derive from international trade.
• Implement the overall agreements in ways that are beneficial or least damaging to the interests of developing and least developed countries.

On their part, developing and least developed countries have accepted differential obligations under the WTO agreements in two broad ways:

• They are free to undertake policies that limit access to their markets, or provide support to domestic producers or exporters in ways that are not allowed to other members.
• They are given more time to meet obligations or commitments under the agreements.

The provisions of GATT Article XVIII gives developing countries the freedom to: (a) grant the tariff protection required for the establishment of a particular industry, and (b) apply quantitative restrictions for balance of payments purposes. It must be observed in this connection, however, that since the establishment of the WTO there have been very few instances in which these provisions have actually been invoked.

The Agreement on Agriculture also contains a variety of measures that exempt developing countries and, to a greater extent, least developed countries from disciplines and obligations that apply generally, and/or provide for longer timetables or more modest reductions in government support and subsidies than apply to other members. For example, investment subsidies or input subsidies to low-income producers are exempted from the calculation of Aggregate Measure of Support (AMS). Reductions in export subsidies are either targeted to be lower or to occur over a longer period of time.

There are specific provisions regarding the operation of government stockholding programmes aimed at enhancing food security, as well as less demanding minimum access provisions regarding primary agricultural products that are the predominant staple in the traditional diet of a developing country.

In all, flexibility with regard to disciplines agreed in the Uruguay Round agreements accounts for about 40 of the 72 provisions for special and differential treatment contained in the agreements.

Flexibility has thus emerged as the most widespread instrument of S&DT. It could be argued that flexibility, as applied in the WTO, is not the negation of reciprocity. Commitments were agreed on a reciprocal basis, and flexibility applies to the differential application of such commitments.

However, the Uruguay Round agreements, by placing flexibility in the context of reciprocity, mark a significant shift in the handling of development issues within the multilateral trading system, away from the concept of non-reciprocity.

Finally, special and differential treatment is provided in the WTO through extending the timeframe in which certain obligations under the agreements are to be implemented by developing countries and least developed countries. This flexibility is provided for in practically all the WTO agreements, with the exception of the Agreement on Antidumping Procedures and on pre-shipment inspection.

Time extensions are provided for a variety of obligations assumed especially under agreements on technical barriers to trade, sanitary and phytosanitary measures and TRIPS. But there are also provisions in the Agreement on Subsidies and Countervailing Measures as well as in the Agreement on Agriculture that permit developing countries to continue to subsidise exports for a period of time in a variety of ways prohibited for other members.

The pursuit of S&DT measures and policies has resulted in a wide range of proposals for new and improved S&DT provisions. Broadly viewed and considered, the arguments that have been advanced for S&DT can be grouped in the following categories:

• Special and differential treatment as an acquired political, if not legal right.
• The right to restrict imports and preferential access to the markets of developed countries.
• Policy space to craft industrial policies such as subsidies for exports and import-substitution measures.

Many of the S&DT proposals currently under consideration in the Doha negotiations and work programme fit into one or other of the above categories. Some, however, do not, such as calls for action favouring developing country trade interests, or to refrain from new actions that prejudice those interests.

Other measures addressed to developed countries target the provision of technical assistance to developing countries and facilitating their participation in the negotiations. A common underlying theme in all these approaches revolves around making the S&DT commitments more binding and/or less discretionary.

Special measures concerning LDCs

In 2002, LDCs had made 88 specific proposals requesting improved preferential access to developed country markets, exemptions from specific WTO rules, and making the provision of technical and financial assistance a binding commitment.

The negotiations concentrated on five of the 88 proposals, with the understanding that members could bring up crosscutting issues to these proposals where relevant.

The proposals include: proposal in respect of waivers of obligations duty and quota-free access for LDCs, coherence of International Monetary Fund, World Bank and WTO measures, exemption from Trade-Related Investment Measures (TRIMs) and Measures in Favour of LDCs. These proposals now form part of the consensus reached at the Hong Kong Ministerial meeting last year.

The Enabling Clause of 1979 provided the basis for the special treatment of LDCs “in the context of any general or specific measures in favour of developing countries”. The Uruguay Round agreements contain 17 provisions applicable specifically to LDC members, in addition to those that are applicable to all developing members.

These include provisions for a more extended transitional period than applicable to developing countries, in the TRIPS, TRIMs, and Sanitary and Phytosanitary Measures agreements.

The agreements on agriculture and on subsidies provide for exemption for LDCs from all reduction commitments, with the subsidies agreement allowing for an extended phasing out of subsidies once export competitiveness is established.

The Annex on Telecommunications to the General Agreement on Trade in Services (GATS) contains a provision seeking to encourage private suppliers in enabling the transfer of technology and training to LDCs with a view to developing the telecom sector.

A number of initiatives have also been adopted with regard to LDC members since the establishment of the WTO. Thus, the ‘Decision on Measures in Favour of Least Developed Countries' (1994) allows LDC members to limit commitments and concessions to the extent compatible with their individual development, financial and trade needs, and which were consistent with administrative and institutional capabilities.

The High-Level Meeting on LDCs held in October 1997 formalised the twin track approach regarding the special and differential treatment of these countries in the WTO, with one track emphasising their limited commitments to liberalisation and the other the increased commitments by developed countries regarding market access and technical assistance. In that context, a number of WTO members announced measures for improved and preferential market access for LDCs.

Regarding technical assistance, an ‘Integrated Framework for Trade-Related Technical Assistance to Support Least Developed Countries in their Trade-Related Activities' was developed, involving the IMF, International Trade Centre, UN Conference on Trade and Development (UNCTAD), UNDP, the World Bank and the WTO.

This Integrated Framework seeks to address shortcomings relating to technical and institutional capacity, particularly in the areas of trade policy, human resources, export supply capability and regulatory regimes.

The key issues that need to be addressed in the context of the special provisions for LDCs are much the same as with developing countries as a whole: are the commitments for preferential market access and treatment offered by developed countries meaningful relative to the constraints these countries face in integrating with the world trading system? Is technical assistance in support of these countries effective? And does the flexibility offered to these countries in meeting their WTO commitments contribute to their long-term trade and development objectives?

Market access and other ‘more favourable' treatment

Regarding market access, the preferences provided under GSP have been eroded by two developments. First, preference margins have been diminished as a consequence of the MFN reduction of tariffs under the Uruguay Round. Second, additional regional arrangements providing deeper and more secure preferences have been put in place, with similar results.

Developing countries have been treated differently by developed countries in the latter's unilateral implementation of GSP. There are no economic reasons to suggest that some of the more developed of the developing countries cannot compete with products in which they have comparative advantage over developed countries. And there is very little political support for extending preferences to them. Indeed protectionist interests in developed countries frequently succeed in discriminating against them.

But there is no formal differentiation embedded in the WTO agreements. Leaving the definition to the individual choices of developed countries invites the introduction of extraneous political considerations in the determination of which countries get which preferences and how much.

Unless countries accept some type of differentiation in their treatment beyond those involving LDCs, there is little prospect that meaningful commitments favouring all developing countries on a general basis can be realised.

A new approach to S&DT

The foregoing suggests that GATT/WTO agreements have fostered a ‘pretend' culture regarding S&DT: developing countries pretend that they should all be treated the same, with the exception of the LDCs, while developed countries pretend to provide S&DT commitments that are not legally enforceable either on market access, or on preferential treatment or on technical assistance.

In response to the dissatisfaction with the functioning of the S&DT regime, many proposals have been put forward by trade negotiators, academics and other researchers covering trade-related obligations in the WTO agreements as well as those relating to technical assistance and aid-for-trade programmes.

One reason -- perhaps the most important reason -- for the lack of progress with respect to these proposals has been the absence of a consensus concerning the putative beneficiaries of a reformed S&DT regime that is legally binding.

Inasmuch as developing countries' need for preferential treatment as well as their institutional capacities vary vastly, it would be reasonable to assume that there would be some measure of differentiation among them in accessing the benefits of an S&DT regime.

Yet, with the exception of LDCs, developing countries under the WTO are considered a homogenous entity.

At the same time, the emergence of LDCs as an established group in the GATT, and later the WTO, has meant that there has been a de facto acceptance and application of graduation in the trading system. This is, in many respects, not dissimilar to the graduation principle now commonly accepted in multilateral financial institutions, which tailor the terms of their lending to the capacity to absorb and manage debt inflows.

The foregoing does not however argue against the need for S&DT for many low-income countries that are not classified as LDCs. In several key WTO agreements such as agriculture, TRIPS and Non-Agricultural Market Access (NAMA), for example, low-income countries will continue to need exemptions and related S&DT provisions for their development.

The challenge has always been regarding the coverage of low-income countries not classified as LDCs. The vast majority of S&DT provisions do not distinguish among developing country members in terms of their differing development needs; in other cases, access to some S&DT provisions is left to the discretion of the WTO membership as a whole.

Experience with the implementation of WTO agreements has confirmed the need for a review and re-examination of all transition periods. A number of transition periods have already expired and their extension needs to be urgently addressed. The re-examination should be done in terms of broad groups of developing countries, with the possibility of extending transition periods for all low-income countries while considering the case for the rest on a case-by-case basis.

A possible approach to these problems would be to define access to S&DT provisions as an integral part of the provisions themselves. This could be done through a more differentiated approach to setting timeframes for implementation on the basis of certain development-related criteria, or preferably in a more direct manner through explicit thresholds based on economic criteria (suggested by A Keck and P Low in ‘Special and Differential Treatment in WTO: Why, When and How' in WTO Working Paper, January 2004).

Of course, this is likely to be more difficult than is assumed, inasmuch as creating a new category means exclusion of some others. WTO members are unlikely to voluntarily give up rights, even in instances where the value of such rights may be modest.

Among the other approaches that have been advocated, mention must be made of at least two. First, it is recommended that total flexibility be given to all countries whose non-compliance with existing agreements does not cause harm to other countries. Second, it has been argued that current country groupings and their definitions need to be re-negotiated. Specifically, this would mean that WTO members cease to be able to self-select their developing country status and are categorised into a larger number of sub-groups than is presently the case.

It is further contended that an ‘LDC-plus' group of small and poor developing countries determined by size and per capita criteria would by and large capture those countries in real need of S&DT across all WTO agreements. In order to deal with individual countries that claim inclusion in this group on a case-by-case basis, rigorous qualifying criteria may be established.

The foregoing suggests that whereas LDCs may form the core of any group of countries eligible for S&DT, a provision-specific approach allows for the additional, automatic inclusion of countries with specific S&DT .

In order to arrest the progressive dilution in the application of S&DT, one area of attention must be the strengthening of coherence between WTO rights and commitments, on the one hand, and the practices of multilateral financing institutions and bilateral donors on the other.

Overlapping this concern is the tendency of bilateral and regional trading arrangements to aim for WTO-plus arrangements, that is, the assumption of obligations in the context of trading arrangements greater than those negotiated in the WTO.

Taken together, these collectively have arguably done more to undermine the efficacy of S&DT arrangements than the emerging WTO processes and practices such as application of a single undertaking. In areas ranging from flexibilities in tariff bindings to liberalisation of services and tightening intellectual property protection, developing countries are ceding policy spaces acquired under the GATT-WTO regime.

Negotiations such as economic partnership agreements between the European Union and ACP ( Africa , Caribbean , Pacific) countries are a case in point. Many of the issues on the agenda go well beyond the commitments made by ACP countries in the WTO (or assume additional commitments such as those relating to the so-called ‘Singapore Issues'). These range from proposals for reciprocal tariff-reduction commitments to further liberalisation of services and investment sectors.

WTO members need to clarify and when necessary collectively assert the primacy of rights under a multilateral trading system over those promoted in more limited contexts. In the absence of such clarity, meaningful S&DT provisions will remain largely ineffective in assisting weaker members of the system.

It has been noted earlier that the international community has made a special effort to address the problems faced by LDCs: the Integrated Framework initiative and aspects of the aid-for-trade initiative are cases in point. LDCs are exempted completely from disciplines, or are provided with more extended transition periods to implement agreements. Moreover, developed countries (and some developing countries) have made additional preferential market-access commitments for LDCs.

Overall, it is estimated that over 90% of the value of merchandise exports of LDCs already have duty-free access in their main developed country markets. This implies that tariff measures do not pose a significant problem on the existing structure of LDC exports. In any case, commitments are relatively easy to make in political economy terms, as LDCs account for very small fractions of developed country imports in most product categories. As a consequence, LDCs may not have to “offer” any new liberalising commitments in order to obtain improved market access.

The main constraints to LDC export expansion derive not from market access problems but from weaknesses in institutional capacities as well as other supply-side factors. The role of the trading system to deal with this set of problems is limited at best.