World Trade Organization’s Special and Differential Problems

Digvijay Mehra, Master of Global Affairs Candidate, Munk School of Global Affairs

Seven decades of painstaking multilateral trade negotiations are poised for a spectacular collapse this holiday season. The United States and the European Union have both signaled their intention to abandon the World Trade Organization as a principal negotiating mechanism for trade agreements if a significant outcome is not achieved at the Nairobi Ministerial this December. As we approach this pivotal stage in the fate of the WTO, the biggest roadblock to success is an idea often relegated to the sidelines of trade policy: Special and Differential Treatment (S&DT).

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S&DT is a foundational principle of the General Agreement on Trade and Tariffs (GATT) dating all the way back to the original 1947 text. The principle rests on the assumption that members of the international community have different levels of economic development. It follows that in order to allow members with lower levels of development to climb the “development ladder,” they must be permitted concessions from strict trade disciplines – developing countries, for instance, should be allowed to protect their nascent industries against foreign competition until they are ready to compete.

The problem lies in figuring out when they’re ready.

With countries like China, Brazil, and India commanding larger and ever increasing shares of world trade and being home to global corporate giants like Alibaba, Tata Industries and Embraer, an issue of great contention is whether these large emerging market countries should continue to receive special and differential treatment. This becomes especially important because any credible multilateral agreement cannot exist without them. However, with the entrenched principle of S&DT buoying them, these countries continue to ask for treatment that is increasingly special and differential. This has created what appears to be an unassailable roadblock in reaching a substantive decision.

Conventional wisdom suggests that the absence of an agreement between the United States and China on agriculture disciplines is preventing forward movement. This is because the WTO negotiations are grounded on a principle of single undertaking – nothing is agreed until everything is agreed. The single undertaking may in fact be preventing discussions from progressing beyond agriculture, however it is the inability of China and the United States to decide on how much S&D treatment China deserves that is holding up the agriculture negotiations in the first place.

As member countries call on the United States and European Union to take on further disciplines on agriculture, the deadlock arises from China’s resistance to reciprocating even in part due to the S&DT principle. Similarly, India and Brazil have also chimed in, claiming their lower level of development should exempt them the strict disciplines that are necessary to meet the level of ambition set in the negotiating mandate of the ongoing Doha Round of trade negotiations.

Yet, the problems of upholding S&DT do not stop at agriculture. S&DT issues are pervasively blocking consensus across a variety of areas.

First, as these large emerging economies rapidly expand with nearly double-digit growth rates, at least until recently, it becomes increasingly difficult to assess where they stand on the development ladder and more importantly when and how they should be eased away from “developing nation” status. This is further complicated by the intricately diverse nature of the globalized national economies of the 21st century, which seek holistic development in all their different sectors. A paradox lies in the presence of world leading Chinese, Indian, and Brazilian corporations operating in countries with chronic malnutrition and increasingly volatile threats to food security.

Second, it is even harder to tackle the nuance that exists between the various economies that are considered “developing.” The negotiating dynamic between the least developed countries (LDCs) and developing countries dilutes the bargaining power these countries have against developed economies. This is especially the case when potential concessions through Special and Differential Treatment lead to benefits being conferred on LDCs over developing countries or vice versa. In such a case, the negotiating power that the large emerging economies of China, India and Brazil bring to the table could be used to protect their own interests and prevent the loss of market share to LDCs.

Third and most problematically, the burden of finding an adequate solution to S&DT lies with developing countries that have less negotiating power to start with (compared to developed countries). With the trend towards mega-regional and plurilateral trade agreements, developed countries do not need to rely on the multilateral setting of the World Trade Organization any longer to make gains through market access. As agreements like the TPP and TTIP start setting standards for the conduct of global trade regulations, it may even be in the favor of developed countries to forsake the WTO and all the S&DT problems that come with it. In this case, the burden squarely falls on developing countries to keep multilateral negotiations alive so they can continue to have a place on the “Trade Table” rather than having to accept mega-regional agreements negotiated by trading powerhouses. This is also the case with the so-called WTO plurilateral agreements: the Environmental Governance Agreement (EGA), Government Procurement Agreement (GPA), and Information Technology Agreement (ITA). These agreements are not hindered by the single undertaking process. They enter into force when ratified by economies that collectively have a significant share of global trade, further reducing the negotiating power of hundreds of smaller members of the WTO.

As with most of the recent self-imposed deadlines the WTO has grappled with, the much anticipated first Ministerial in Africa seems to be moving towards inevitable failure. Unless the various issues of implementing the principle of S&D Treatment are resolved, the Doha Development Round faces a possible demise in Africa – the continent most eager for the fruits of its success.

 
 

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