Rethinking Special and Differential Treatment: Towards an integration of S&D principles into the 21st century

11 November 2015

S&D provisions must effectively address the needs of developing and least developed countries. How can we rethink them for that purpose?

Special and differential treatment (S&D) has been an integral feature of the multilateral trading system (MTS) as it has developed since the establishment of the GATT. S&D measures seek to address the gaps between developed and developing countries in their relative capacities to accept and implement various trade disciplines, including through the provision of trade-related assistance programmes. It has evolved over the years, from the early GATT focus on providing flexibility to developing countries (DCs) in the use of tariffs and quotas, to the Uruguay Round approach where the focus shifted to provisions for derogations, delays or exemptions from new disciplines, and best-endeavour commitments from developed countries to provide technical assistance and other forms of support to DCs and LDCs.

S&D in its modern form addresses special market access, policy space and the principle of less-than-full-reciprocity. Despite the evolution in S&D to encompass these important elements, it is argued that, in practice, S&D has, so far, failed to provide effective and adequate means for securing the better integration of many DCs and LDCs into the MTS or promote strong trade-led development.

The 2001 Doha Ministerial Declaration reaffirmed the importance of S&D provisions and stressed that the integration of DCs into the MTS will require meaningful market access, support for diversification of their production and export base, as well as trade-related Technical Assistance and Capacity-Building (TACB). It is argued that interpretative ambiguities and the absence of binding TACB commitments on the part of developed countries have undermined S&D in practice. Paragraph 44 of the Doha Ministerial Declaration, in which “members agreed that all S&D provisions shall be reviewed with a view to strengthening them and making them more precise, effective and operational”, underscored members’ recognition of the inadequacy of S&D as reflected so far in the various agreements and decisions of the GATT/WTO.

In order for the S&D provisions to be effective, practical and results-oriented measures designed to address the specific concerns and needs of beneficiary countries at the national level are required. Assistance should be prioritised in favour of those most in need, but must at the same time address the concerns of all developing countries. Programmes must also address the resource and capacity-related limitations that constrain the abilities of many countries to use these provisions to their advantage.

Technical assistance: a vital S&D component

Technical assistance granted in the context of special and differential treatment needs to be made more precise and must be properly aligned with local priorities and institutional arrangements, measured against appropriate benchmarks. Indeed, an assessment of Aid for Trade (AfT) programmes shows that from 2006 to 2013, nearly a quarter of the funds committed for AfT were not disbursed. The value of transition periods afforded to developing countries under the S&D provisions is put in question if no technical assistance or financing for development is provided during that time. Furthermore, the S&D practice of simply extending transition provisions without addressing the root causes of the need for exceptions can reinforce rather than resolve the problem.

Technical assistance-related S&D provisions are non-binding and, therefore, it is difficult to assure their implementation. Nevertheless, greater effort can and should be made to ensure predictability of support once proffered. S&D cannot be a convenient means of getting smaller developing countries with limited shares of world trade to step aside, while others get on with the business of trade expansion. This seems, for example, to be the case for TRIPS article 66.2, where promises to assist LDCs to develop the capacities which would enable them to implement the disciplines of TRIPS article 66.1 seem to have been ignored in favour of rollovers of the exception.

Identifying and addressing some contemporary S&D challenges?

The approach to S&D adopted in the Trade Facilitation Agreement (TFA) addresses in part those limitations. By making the capacity to implement a provision of the TFA a pre-condition to being bound by that measure, the TFA seeks to enable WTO members to participate rather than derogate as a fundamental principle. While it still suffers from the as yet unresolved dilemma of “binding TACB”, the clear priority given, under the TFA, to the inclusion of support for capacity-building as a feature of reporting on steps to determine the point of implementation of a new measure has increased accountability, if not enforceability, of the commitment to TACB. It remains to be seen whether this will have a positive impact on the further evolution of S&D.

The conceptual debate on S&D has become largely two-dimensional. On one level the calls for advanced developing countries to accept “graduation” and substantially abandon claims to S&D have become a mainstay of the debate on all aspects of the DDA. On the other is the effort to refocus S&D on LDCs. Either approach presents profound challenges for the principle of S&D as a tool for development through trade. If S&D is such a tool, then it certainly has a role to play as long as the country in question remains a developing country. There are many examples of DCs voluntarily reducing their demands or increasing their contributions in certain WTO initiatives, without declaring themselves developed or suggesting that they no longer wish to access S&D measures. This should be the guiding principle for adapting S&D for DCs with stronger capabilities in an area under negotiation. Indeed, the very nature of the WTO allows members considerable latitude in determining the scope and depth of any new commitments. S&D simply adds a development-oriented factor in the shaping of those member-driven flexibilities.

There are many examples of developing countries voluntarily reducing their demands or increasing their contributions in certain WTO initiatives, without declaring themselves developed or suggesting that they no longer wish to access S&D measures.

S&D measures should be developed so as to promote growth in DCs and contribute to the enlargement of the trade and economic pie without undermining the legitimate trade interests of developed countries. Equally, developed countries should not seek to “kick away the ladder” of protective or trade-promoting practices that are now disciplined in multilateral trade agreements (MTAs) without first considering their continued contribution in countries pursuing similar development paths.

At the same time, S&D should not seek to preserve inherently harmful practices. A balance needs to be struck between allowing developing countries the full scope of measures that have helped developed countries develop, and bringing to an end practices that are inherently harmful to all. DCs must also ensure that measures to preserve policy space are based on realistic assessments of need for the flexibilities in current or future policymaking.

Against this background, WTO members should use the Council for Trade and Development’s newly established "monitoring mechanism" to consider the efficacy of S&D measures, with a view to helping members identify how these measures may deliver the trade and development impact intended. For many DCs and LDCs, agriculture continues to be the main source of foreign exchange earnings and employment. However, the share of agricultural exports from LDCs has been declining over time. Many developing countries have a substantial underutilised potential in agriculture. The development of their rural sector is a major development and food security priority. They therefore need changes in the rules that govern agricultural production in order to facilitate these objectives. The principal challenge for these countries is not preserving the status quo but securing opportunities to expand their exports and thereby strengthen prospects for economic growth and sustainable development.

For many DCs, including SVEs, the issue of non-tariff barriers (NTBs) remains a priority issue, as many see these as the main obstacle to improved trade performance. At the same time, the duty-free quota-free (DFQF) initiative is seen by LDCs as an important deliverable that would support the strengthened global integration of their economies. The demand for DFQF was forcefully advanced by LDCs when the DDA was launched in 2001. Whilst there was widespread support for DFQF market access favouring the LDCs, some of the developed countries, whose GSP scheme did not cover many of the important items of export from the LDCs, were opposed to an overarching DFQF initiative.

S&D therefore remains a vital and important measure of WTO’s effectiveness and credibility as an institution supportive of development.

At the same time, some DCs and LDCs have raised concerns about the impact of full implementation of the initiative. The key concern raised is the potential erosion of benefits to some LDCs and DCs under preferential arrangements. This has to be addressed while recognising that for some DCs and LDCs, the importance of DFQF has increased due to the proliferation of certain preferential trade agreements. While recognizing that many developed and some DCs have applied the DFQF principle in their preferential schemes, the binding as well as expansion of the scope of some commitments could provide greater security and predictability of access to major markets.

Given the increasing contribution of the services sector in their economies, LDCs accord high importance to the GATS S&D provisions. Efforts to secure precise commitments under the LDC service waiver are a priority for many WTO members. At the same time, attention must be paid to the challenges that some DCs face in ensuring compliance with specific GATS commitments.

Conclusion

The WTO must provide rules that allow members to advance without impeding the progress of others. S&D therefore remains a vital and important measure of WTO’s effectiveness and credibility as an institution supportive of development. An effective S&D approach for the 21st century must enable DCs and LDCs with flexible and effective tools for deepening their integration into the MTS and achieving sustainable development through trade. The S&D approach adopted in the Trade Facilitation Agreement and the efforts underway to pursue the goals set in paragraph 44 of the DDA provide avenues for updating S&D to further assist DCs and LDCs in the effort to promote trade led development. The simple message of paragraph 44  that the S&D measures should be reviewed with a view to making those existing more precise, effective and operational  also underlines the importance of ensuring that all new S&D approaches meets this standard at the outset. The objectives set for an S&D measure must be clear and the measure adopted fit for its purpose. This is important as a systemic matter for the MTS and even more so for the countries for whom the measures are designed.

Author: Wayne McCook, Jamaica’s Permanent Representative to the United Nations Office, the WTO and other international organisations in Geneva, Switzerland.

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