In a recent memorandum to the United States Trade Representative (USTR), President Donald Trump has raised objection to the special benefits termed as Special and Differential Treatment (S&DT) enjoyed by the developing countries like China and India under the “self-declared developing country status” in the World Trade Organization (WTO). In his opinion, these countries, which currently fall under the “developing” country category in the WTO, no longer qualify for the privileges owing to their rapid economic growth and development. The matter has been raised at a time when the functioning of the multilateral trading system has almost come to a standstill. In this backdrop, this paper examines the Special and Differential Treatment (S&DT) benefits, issue related to self-declared claims by the developing countries like China and India and the responses issued by them to the US dictum.
Source: WTO via Wiki Commons
President Trump, in a sermon about the WTO reform, has accused developing countries particularly China and India of enjoying unfair advantages under “developing country” provisions in the WTO despite being relatively developed countries in the world.1In his opinion, these countries, which currently fall under the “developing” country category in the WTO, no longer qualify for the S&DT benefits, originally meant for encouraging developing countries participation in the multilateral trade body. In his threat to the WTO, he declared unilateral means to revoke the provisions that the Organization grants to a certain number of its member countries.
A country which joins the WTO under the “developing” category is entitled to certain special and flexible provisions, known as S&DT measures, enshrined in Chapter III of the Havana Charter. This measure grants special provisions like longer time frames for implementing accession commitments and trade agreements, longer phase-down periods for reduction of tariffs and certain export subsidies exclusive to developing countries, procedural benefits in the WTO Dispute Settlement Body (DSB) and offers technical assistance and capacity building from the developed countries to help the developing economies carry out their WTO related commitments.2
According to the memorandum issued by the White House to the USTR, countries like India and China are economically vibrant and their claim to entitlements in the WTO stands unsubstantiated. The memorandum points to the undue benefits available to these countries due to which not only the developed countries remain in disadvantageous position but these provisions also block the prospects of the least developed nations, which are in real need of special considerations in the trade agreements in the WTO.3
Suffering a Setback
The matter related to developing country benefits has been raised at a time when the US and China are struggling to arrive at a consensus on matters related to market access, technology transfer and intellectual property rights protection. India on the other hand, is trying to recover from the setbacks its exports are facing after Trump administration’s withdrawal of New Delhi’s status as a beneficiary country under the Generalized System of Preferences (GSP) program in March, 2019.4At the global front, the WTO functioning has come to a standstill and its key organ, the DSB has become dysfunctional with Washington blocking the appointment of judges in the Appellate Body (AB).5
In this backdrop, the issue related to developing status has emerged as a new tender spot, which has been invoked unilaterally by the Washington in the name of creating a fair and equal trading system. The matter which once formed the bedrock of understanding between the developed and developing countries in the WTO has currently come under attack from the developed countries, especially the US. It caught President Trump’s attention during the latest round of multilateral negotiation on elimination of fisheries subsidies in the WTO. China, the largest fishing country by volume, refused to fully eliminate the subsidies on fisheries while reserving certain types in the category of “green box” of exemptions.6India has cited reasons of food security and sought for a longer transition period to eliminate subsidies on case to case basis. India continues to preserve the rights of the small fisheries by ensuring subsidies on the purchase of boats, nets and fuel.7
However, there is no common united position of the developing countries in the WTO. From agriculture to cotton to fishing, the developing countries have remained divided and have failed most of the time to present a strong bargaining coalition vis-à-vis the developed countries. Brazil, taking a U-turn from its previous position has recently decided to give up the “developing country” status in the WTO, adding fuel to Trump’s demand of abolition of these privileges for countries like India and China.8The problem lies in categorisation of the developing countries in the WTO, whose developmental needs and level of development are hugely divergent.9 It therefore becomes difficult to build up a consensus among developing countries whose S&DT needs vary and require different criteria for graduation to high income economy status.
Source: Reuters file
President Trump has launched several attacks to discredit the WTO. Unaware of the history of the S&DT negotiations, he wants the multilateral body to serve US’ interests. However, what he does not realise is that every country has its section of vulnerable and poor who require some kind of protection.10 For example, the subsidies enjoyed by farmers in the US and Canada are not only higher than that of subsidies in China, Brazil and India, but these subsidies have also given their products huge competitive advantage in the international market as compared to the agri-products from these developing countries. In India, on the other hand, the transition from agriculture to manufacturing or service sector has not been complete, and a large section of its population is dependent on the state subsidies for a decent living. China, despite its 10$ trillion Gross Domestic Product (GDP), has a Gross Net Income (GNI) per capita at US$8, 690 which is below the threshold of GNI per capita at $US12, 055 as per the World Bank parameter, making it eligible for the status under this framework.11
S&DT Privileges and the Case of India and China
Assessing the significance of these concessionary privileges, it can be argued that the non-reciprocal trade agreements between developed and developing countries do not necessarily lead to overall promotion of exports from the developing countries. Primarily aimed at addressing the development concerns, these special privileges were believed to be catch-up strategies for countries far behind the developed ones in economics, trade and finance. However, in practice, the S&DT provisions have failed to provide meaningful market access or the support required for diversification of their production and export base, as well as trade-related Technical Assistance and Capacity-Building (TACB).12It is mostly due to the interpretation related ambiguities and the absence of binding TACB commitments on part of the developed countries that has undermined the very purpose of the S&DT measures.13
The present debates in S&DT largely focus on whether the advanced developing countries should give up their claims to S&DT for an active engagement with the multilateral trading system. The proponents of the debate argue that the emerging-market economies like China and India would be better served by giving up their developing status in the WTO.14For countries like China and India, the domestic lobby becomes a major hindrance in ratifying a trade deal or reaching a consensus at the WTO negotiations. These countries sometimes use their S&DT status to block multilateral negotiations especially on the issues where gaining support from the domestic lobby becomes almost impossible. However, there is no strict-cap that these developing countries follow under the S&DT status.
For instance, at the 6th WTO Ministerial in 2005, China played a key role in the agricultural domain by negotiating a framework proposal promoting market access that constituted the toughest aspect in the Doha round negotiations.15 This proposal was welcomed by the rich countries like the US and the European Union (EU). While India has been lukewarm to the idea of market access of the agricultural products, it actively demands expansion in trade liberalisation in services, which is similar to the position of many Latin American and few developed countries like New Zealand, Canada and Australia.16 Thus, the developing countries vary in their S&DT demands and have displayed flexibility with voluntarily reducing their demands or to strike compromises at the high table, increasing their contributions in certain WTO initiatives. While these acts do not suggest in any way the willingness of the developing countries like India and China to give up S&DT status, it however indicates the flexible nature of the WTO membership irrespective of the category a country belongs to.17
The Indian side has made it clear that despite significant success stories of Indian economy, the country continues to lag far behind developed economies, which is evident in its ranking in various human development indicators. The Indian Commerce Secretary, Anup Wadhawan, pointed that the impact of the withdrawal of S&DT provisions will be damaging to the Indian economy given its existing 600 million poor population, S&DT remains a vital and important measure promoting WTO’s effectiveness and credibility as a multilateral institution supporting the countries in their development needs.18In a similar vein, the Chinese Commerce Ministry spokesperson Gao Feng has said that while China does not shy away from its international responsibilities, it continues to remain the largest developing country and would therefore execute the WTO obligations in sync with its level of economic development and capabilities.
In a joint paper submitted to the WTO, the four countries India, China, South Africa and Venezuela, reiterated the divide that exists between the developing and developed economies on a wide range of indicators like the GDP per capita, poverty levels, levels of under-nourishment, production and employment in agriculture sector, trade in services, etc.19 They pointed to the persistence of the low standard of living in many developing countries despite some significant growth stories. For example, China’s rural population is six times more than that of the developed members like Germany, Japan, the United Kingdom and the US, and in India this has increased to around eight times.20They argue that the developing countries are still amidst domestic economic transformation, which require policy space, flexibility and support for carrying out various policy experimentations. In their view, the WTO, being the key institution promoting fairness and justice in international trade negotiations, should therefore build “development-friendly regime” that allows the developing countries to utilise the S&DT benefits from time to time.
However, questions have been raised why India joined China in its WTO response to assert its S & DT claim after US had questioned their privileges under the S & DT bracket. The skeptics argue that there exist striking gaps in economic parameters between China and India and that India falls nowhere near China’s economic weight, despite its steady economic growth. In their view, joining hands with China in defending the developing country status in the WTO would only weaken India’s position. But the Indian officials as well as the trade experts argue that in multilateral frameworks like WTO, a country cannot fight alone and therefore, a coalition is essential to put up a strong bargaining front against the developed countries. In that way, despite the economic power asymmetry between the two countries, having China along would lend greater political weight to the cause. Also, it is not the first time India has submitted a joint paper with China. The first joint paper was on July 17, 2017, in which they demanded a reduction of green box subsidies enjoyed by the developed countries, which have resulted in a major asymmetry in the WTO’s Agreement on Agriculture.21
Thus, the loss of developing country status in the WTO is not only going to disrupt the process of economic transformation in these countries but will also create more distortions in their economies. Although the “developed-developing” dichotomy does not bode well for the WTO negotiations, but the flexible approach of the developing countries to forego the claim in a specific negotiation creates space for new coalitions and agenda-setting. Thus, the issue of graduation related to the countries giving up their S&DT status in the WTO should not only consider the quantitative data but also take into account the various political-economic considerations.22 The graduation should ensure that the economic transition in these countries is complete and they are not struggling in the midst of international competition. Otherwise, there lies a greater risk of intensifying the divide between the developed and developing side in multilateral trading system, in turn limiting the scope of the WTO as the arbiter of the global trade governance.
* The Authoress, Research Fellow at Indian Council of World Affairs, New Delhi.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
1Business Today (2019), “Donald Trump asks WTO to reform 'developing' country status; to impact India, China”, July, 27, 2019,https://www.businesstoday.in/current/economy-politics/donald-trump-wto-reform-developing-country-status-impact-india-china/story/368227.html. Accessed on 21st August 2019.
2United Nations Conference on Trade and Employment (1948), Final Act and Related Documents, https://www.wto.org/english/docs_e/legal_e/havana_e.pdf. Accessed on 1st September, 2019.
3 Presidential Memoranda (2019), Memorandum on Reforming Developing-Country Status in the World Trade Organization, https://www.whitehouse.gov/presidential-actions/memorandum-reforming-developing-country-status-world-trade-organization/. Accessed on 1st September, 2019.
4Priyanka Pandit (2019), “India’s Loss of GSP Status Is a Diplomatic, Not an Economic, Setback”, The Diplomat, https://thediplomat.com/2019/06/indias-loss-of-gsp-status-is-a-diplomatic-not-an-economic-setback/. Accessed on 1st August, 2019
5 Kathuria, Rajat (2019) “For all its current troubles, WTO may still emerge as the lynchpin of global trade governance”, The Indian Express, https://indianexpress.com/article/opinion/columns/it-takes-many-5918326/. Aceesed on 25th August 2019.
6Woody, Todd (2019) “High Stakes for China as WTO Fishing Subsidies Cap Looms”, The Maritime Executive, https://www.maritime-executive.com/editorials/high-stakes-for-china-as-wto-fishing-subsidies-cap-looms. Accessed on 25th July, 2019.
7 Parmentier, Rémi (2019), “WTO Fisheries Negotiations: Failure Is Not An Option”, IISD, https://sdg.iisd.org/commentary/guest-articles/wto-fisheries-negotiations-failure-is-not-an-option/. Accessed on 25th July 2019.
8Siddiqui, Huma (2019), “Friction between India and Brazil, following disagreement at WTO”, Financial Express, https://www.financialexpress.com/economy/friction-between-india-and-brazil-following-disagreement-at-wto/1661000/. Accessed on 20th August, 2019.
9Brummer, Julia (2005), “India’s Negotiating position at the WTO”, Dialogue on Globalisation, https://library.fes.de/pdf-files/bueros/genf/50205.pdf. Accessed on 20th July, 2019.
10Mishra, Asit Ranjan (2019), “India, EMs make case for special treatment at WTO”, Livemint, https://www.livemint.com/politics/news/india-ems-make-case-for-special-treatment-at-wto-1550769606618.html. Accessed on 02nd September 2019.
11World Bank Data Team (2019), “New country classifications by income level: 2019-2020”, https://blogs.worldbank.org/opendata/new-country-classifications-income-level-2019-2020. Accessed on 2nd September 2019.
12Gonzalez, Annabel (2019). “Bridging the Divide between Developed and Developing Countries in WTO Negotiations”, Peterson institute for International Economics, March12, 2019, https://www.piie.com/blogs/trade-investment-policy-watch/bridging-divide-between-developed-and-developing-countries-wto. Accessed on 25th July, 2019.
14McCook, Wayne (2015), “Rethinking Special and Differential Treatment: Towards an Integration of S&D Principles into the 21st Century”, Bridges Africa, https://www.ictsd.org/bridges-news/bridges-africa/news/rethinking-special-and-differential-treatment-towards-an. Accessed on 25th July, 2019
15Brummer, Julia (2005), “India’s Negotiating position at the WTO”, Dialogue on Globalisation, https://library.fes.de/pdf-files/bueros/genf/50205.pdf. Accessed on 25th July, 2019
17Kennedy, K (2005), “Special and Differential Treatment of Developing Countries”,in Patrick F. J. Macrory Arthur E. Appleton Michael G. Plummer ed. The World Trade Organization: Legal, Economic and Political Analysis, (pp. 1523-1570), Springer, Boston, MA.
18 Mishra, Asit Ranjan (2019), “India, EMs make case for special treatment at WTO”, Livemint, https://www.livemint.com/politics/news/india-ems-make-case-for-special-treatment-at-wto-1550769606618.html. Accessed on 02nd September 2019.
19wt/gc/w/765 (2019), “The continued relevance of S&DT in favour of developing members to promote development and ensure inclusiveness”, February 18, 2019,file:///C:/Users/Lenovo/Downloads/W765.pdf. Accessed on 20th July 2019.
21 Sengupta, Jayshree (2017), “India & China: On the same side at the WTO”, The ORF, https://www.orfonline.org/research/india-china-on-the-same-side-at-the-wto/
22 Tortora, Manuella (2003), “Special and Differential Treatment and development Issues in the Multilateral Trade Negotiations: The Skeleton in the Closet”, https://unctad.org/Sections/comdip/docs/webcdpbkgd16_en.pdf. Accessed on 20th July 2019.