The Reform of Special and Differential Treatment in the WTO

On October 7, ECIPE hosted a discussion on the reform of Special and Differential Treatment (STD) in the WTO. The event started with a presentation of a forthcoming paper by Ms. Inu Manak and Mr. James Bacchus. After the presentation, Ms. Myrto Zambarta (European Commission, DG Trade) presented the European perspective on the topic. The event was moderated by Maurice Fermont from BusinessEurope.

The main part of the debate focused on the recent proposal to reform special and differential treatment that was released early this year and was mentioned recently by President Donald Trump in one of his tweets.

The WTO is BROKEN when the world’s RICHEST countries claim to be developing countries to avoid WTO rules and get special treatment. NO more!!! Today I directed the U.S. Trade Representative to take action so that countries stop CHEATING the system at the expense of the USA!

— Donald J. Trump (@realDonaldTrump) July 26, 2019

Despite the dramatic tone of the post, the document that was released in February focuses on three key challenges. First, it discusses the outdated dichotomy between developed and developing countries, which hurts countries that actually need help. Secondly, the document points out the lack of a precise definition of “special and differential treatment”, which makes it hard to distinguish between countries at different levels of development. Third, it identifies the problematic and open to abuse process of self-declaration that contributes to stalled negotiations and an unwillingness to take on greater commitments.

Ms. Manak has pointed out that in recent years some of the developing economies outperformed or matched the performance of developed economies in trade. Developing countries have substantially grown their merchandise exports in the last two decades, nearly equaling that of the developed countries in 2017.

Based on these and other economic indicators, the Trump administration has put forward a proposed list of requirements that a country would have to meet to claim SDT in future WTO negotiations. The countries that stand out under these conditions, and are most likely the target, are China, India, Japan, South Korea and Singapore.

Ms. Manak has also provided a brief overview of the developing countries responses from a group led by China and another one that includes Bolivia, Cuba, Ecuador, India, Oman, and African members.

Further, we have learned more about the concept paper put forward by the European Commission. The EU’s focus is on the need to strike a balance between reciprocity and flexibility rather than eligibility criteria, focusing instead on a needs-based approach. It also emphasizes convergence as the long-term goal and points to graduation mechanisms or assistance linked to implementation as tools to achieve it.

The DG Trade also believes that the ‘lack of nuance and its consequences with regard to the special and differential treatment question has been a major source of tensions in the WTO and an obstacle to the progress of negotiations: the demand for blanket flexibilities for two thirds of the WTO membership dilutes the call from those countries that have evident needs for development assistance, leads to much weaker ambition in negotiations and is used as a tool to block progress in, or even at the beginning of, negotiations.[1]’

The most difficult obligations could also be linked with capacity building. While, in light of the ongoing climate discussions, SDT should be correlated with the UN Sustainable Development Goals. Countries should also clarify how special and differential treatment allows them to achieve these goals.

The major point raised highlighted the need to obtain and use more data in future negotiations to make claims for SDT more needs-driven and evidence-based.

While considering all above-mentioned proposals, Manak and Bacchus’s approach focuses on alternative suggestions. They draw from Amartya Sen’s concept of development as “an empowering process”— the goal of integration should remain and a broader view of development, focusing on improving individual choices, should be taken into account. They propose a change to SDT, based on a case-by-case, product-by-product, and sector-by-sector basis. The authors promote evidence-based assessment and reject the idea of any specified or automatic effect of self-declaration. They also support an affirmative and binding obligation by developed countries to provide technical assistance.

The authors of the paper would like to see SDT on the negotiating agenda in the future. Ms. Manak has also suggested implementing this novel attitude towards some of the currently ongoing negotiations (i.e. the WTO Fisheries Subsidies Negotiations). Ideally, all WTO Members would agree to a set of non-binding, illustrative guidelines to help assess the necessity of future SDT claims in a Ministerial Declaration.

Given the complexity of the case-by-case, sector-by-sector approach, some concerns were raised that it might create additional burdens for business. “The idea of differentiating among developing countries to identify the true nature of their development needs and ways in which SDT can help them meet those needs is an innovative approach to help break the deadlock in WTO reform. An important yardstick for achieving development and measuring success, however, is ultimately whether this approach also allows companies—the agents of international trade—to effectively navigate the trading system. Applying SDT differently per product, sector, and a country could increase the red tape businesses have to navigate to engage in international trade. If the implementation of the paper’s proposal takes into account both the real development needs of certain countries in a way that business can effectively participate, then we may have found a recipe for success” said Maurice Fermont from BusinessEurope.

The overall conclusion of the discussion was that special and differential treatment must be reformed to allow the WTO system to adapt to the 21st century. Still, the Members should also keep working on rebuilding trust and goodwill for these reforms to succeed.

[1] EC Concept Paper, WTO Modernisation, June 2018, accessed 8/10/19 https://trade.ec.europa.eu/doclib/docs/2018/september/tradoc_157331.pdf

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To learn more about the forthcoming publication please contact Inu Manak at IManak@cato.org.