Author Name:   pushkarthakur

The WTO Agreements containing special provisions give developing countries special rights and developed countries the possibility to treat developing countries in a more favoured way than other WTO Members...

Special & Differential Treatment in World Trade Organization

The WTO Agreements containing special provisions give developing countries special rights and developed countries the possibility to treat developing countries in a more favoured way than other WTO Members. The provisions include, things like, longer time periods for implementing Agreements, commitments or measures to increase trading opportunities for developing countries.[1] Such provisions are referred to as “special and differential treatment” provisions.

The special provisions of the WTO include:
• Relaxation of time periods for implementing Agreements and commitments,
• Specific measures to increase and promote the trade of developing countries,
• provisions making it mandatory for all the WTO members to safeguard the trade interests of developing countries,
• possible support to help the developing countries in building the infrastructure for WTO work, handling disputes, and implementing technical standards, and
• provisions related to Least-Developed country (LDC) Members.[2]

While there are 6 billion people in this world today, the wealthy part of the world, the developed world, contains no more than 15% of the world’s population. The rest of the world which falls under brackets such as ‘less developed countries’ or ‘least developed countries’ or alternatively, ‘developing countries’ or ‘under-developed countries’, and comprises of 85% of the world’s population, existing in a state of near minimum subsistence. The world therefore faces a divide known as the ‘developmental gap’ which refers to the discrepancy between the living standards of these wealthy and developed countries on one hand, and less developed countries with relatively poorer economies on the other hand. Interestingly, it has been observed in the recent past that the standards of living in the developed world keep getting better while the poorest of countries struggle to make any progress; further widening this development gap.)[3] This results in an even more unequal world with unequal means of livelihood.

However, while there are developed economies which include some of the wealthiest countries of the world and other economies which have struggled to grow, most countries fall in the category of the developing world with economies in constant growth, at however differential rates, yet full of promise to grow further. It has been observed by economists that the reason behind the success of under-developed economies’ robust growth has been their success in implementing outward-oriented reforms that have enabled them to integrate rapidly into the global economic and financial system.[4]

It is an acceptable fact that today no developing country can play a significant role in the global trading system without the presence of trans-national countries within its borders. It has also been observed that the model that promises maximum returns to these developing economies is not one of extreme protectionism but a model that balances protection and liberalization. This does not mean that protectionism as a policy has failed miserably, but in turn highlights the importance of liberalization with planned discrimination and safeguards to ensure the development of local industries. The basic intention is to help the developing country in question to integrate with the global economy and let it benefit from whatever it is that is a distinctive characteristic of that country vis-à-vis its competitors. Once the country has a firm footing in the international market, the country is able to make use of such stability and guide itself to a future of growth and let its economy flourish.

Approximately two-thirds of the 150 member states that constitute the World Trade Organization (WTO) are developing countries. The number of developing countries in the WTO is ever increasing and so is their participation. Considering the vast majority, it comes as no surprise that the interests of these developing countries lie at the core of the organization’s policies. [5]

Now the question arises, what exactly are developing countries, and who makes the distinction between a developed and a developing country? Moreover, what purpose does this distinction serve? While there is no universally accepted definition of a developing country, the World Bank, the International Monetary Fund and the United Nations use different yardsticks to determine the development status of a country. There is, however, no official list of developing countries. The practice has been that such status is self determined.[6] The member countries of the WTO announce their own status at the WTO as either developing or developed. However, this status can be challenged by other member countries as there are several benefits and rights that are reserved at the WTO for developing countries. These benefits may include longer transitional periods before a developing country may be expected to comply with global norms, or the provision of technical assistance to developing countries which may not be provided to developed nations. [7]

Such are the needs of a developing country; leniency and planned protection in order to ensure that the developing economy can compete internationally with other countries, some of them developed economies, and establish a firm foundation in this global economy and as a result tread the path of growth and economic success.

Without special provisions for such economies the developed world, which already dominates international trade, can easily exploit a poorer nation owing to a better bargaining position and better sustainability of economy. Keeping this mind, the researcher thus concludes that special provisions have to be made for the developing countries and the least developed countries to enable them to a platform which gives them better access to international markets while protecting their own interests. This also safeguards them from harsh policies and treaties with better off nations which might favor the rich countries who dominate world trade and its governing organizations and are able to heavily influence policy decisions at international forums. Such policies or treaties might otherwise have the tendency to significantly deter economic growth of developing countries due to the sensitive nature of their economies. Moreover, incentives and benefits provided to these countries can in fact boost this economic growth further.

The standard development arguments for special and differential treatment are two fold. First , it is argued, it is developmentally undesirable for some countries to follow policies that are sensible for others. The agreement on agriculture for example, has a core objective the removal of the substantial OECD distortions that have led to higher agricultural output that can be justified economically.[8]

The other argument is that parts of the new trade agenda are developmentally desirable, but the opportunity cost of implementation at this stage is too high.[9]This is because it is expensive in terms of finance, human resources, or governmental/judicial attention. At the same time, the cost to the world trade system of non implementation is trivial (because the country’s share of relevant trade is so miniscule.[10]

To grasp the need for special and differential treatment , the researcher has taken into consideration the need for such treatment with respect to international trade. International trade plays a significant role in the development of a country’s economy and engines its economic growth. It is this international trade that has led to major economic advancement over the past five decades or so, and the process of globalization and the increased accessibility of markets have only aided this process. We live in a world of specialization and inter-dependence. Every country seeks to maximize their profits by playing to their strengths and marketing their products and services in which they hold an edge over their competitors. International trade has therefore become an/ indisputable fact and the dilemma today is not whether to trade or not, but instead how to trade. [11]

As a consequence of a liberal outlook and ready access to global markets, nations are able to compete and market their products globally by increasing their economic efficiency to meet their aim of accumulation of wealth. It cannot be denied that there exists an underlying link between trade and development. It is widely believed that while trade may cause increased inequalities, in the long run trade forms an important source of income and is useful in reducing poverty. [12] Therefore, it has been globally understood that trade is an essential part of a wider process of a country’s development.

It has been recognized worldwide that trade is an essential contributor to a country’s national income and has a major role to play in its development. This is the reason why developing countries are offered better trading opportunities to help them integrate with the international trade.

While discussing the special and differential treatment of third world countries , it becomes quintessential to mention the india-ec case. In april 2004, the wto appellate body issued a report which allowed a developed country to apply different tariffs to products originating in different generalized system of preferences (GSP) beneficiaries, it was subject to the said requirement that identical tariff is applied to the products of all similarly situated developing country members with the development, financial and trade needs to which the differential tariff treatment is intended to respond. India brought forward this case against the European Communities challenging their discriminatory tariff preferences.[13]

Research Questions. What are the various provisions for special and differential treatment in the WTO?
2. What are the reasons for special and differential treatment in the WTO?
3. What does the India-EC case deal with?

Various Provisions for Special & Differential Treatment in the WTO.
The WTO Secretariat has made several compilations of the special and differential provisions and their use.

The ambit of special and differential treatment consists of 145 specific provisions spread across the different Multilateral Agreements on Trade in Goods; the General Agreement on Trade in Services; The Agreement on Trade-Related Aspects of Intellectual Property; the Understanding on Rules and Procedures Governing the Settlement of Disputes; and various Ministerial Decisions. Of the 145 provisions, 107 were adopted at the conclusion of the Uruguay Round, and 22 apply to least‑developed country Members only. [14] The said provisions referred to : actions developing countries might undertake via exemptions from disciplines otherwise applying to the membership generally; exemptions from commitments otherwise applying to Members in general; a comparatively low level of commitment for the developing countries as compared to the developed countries and membership in general.

The phases of development of the special treatment of the third world countries can be studied in the form of four phases. The first phase starts from the forming of the GATT in 1948 till the beginning of the Tokyo Round in 1973. The second phase refers to the Tokyo Round itself, from 1973 to 1979. The third phase dates from the end of the Tokyo Round to the end of the Uruguay Round, that is from 1979 to 1995. The fourth phase starts from the end of the Uruguay Round until the present.[15] The analysis that follows distinguishes five arguments that have been advanced for Special &Differential treatment. The five categories are stated as follows:
1. Special and differential treatment is an acquired political right.
2. Developing countries ought to enjoy privileged access to the markets of their trading partners, particularly the developed countries.
3. Developing countries ought to have the right to restrict imports to a greater degree than developed countries
4. Developing countries ought to be allowed additional freedom in order to subsidize exports.
5. Developing countries ought to be allowed flexibility in lieu of the application of certain WTO rules, or in order to postpone the application of rules as stated by WTO.[16]

Chapter-2
Reasons For Special And Differential Treatment In The WTO
The concept of this differential treatment stems from the understanding that many policies that may be implemented with the focus on a developed economy could possibly have ill effects on a poorer economy. Policies which might make sense for one nation might not have the same consequences in another economy. Or in other words, different economies may have different characteristics and needs. For example, a policy which might be initiated to counter the excessive subsidies in rich countries, say in the agriculture sector, can easily restrict the support that could be provided to a poor country for its agriculture and thereby have unwanted results. To elaborate the example, the Agreement on Agriculture has provisions for the removal of certain subsidies which had led to higher agricultural output that that could be justified economically and therefore the agreement focused, as one of its core objectives, on the removal of these subsidies. But the case with developing and least developed countries is such that they suffer from neglect and have been unable to benefit as much from these subsidies. These poor economies still have lower agricultural production than it should be[17] If instruments to remove the subsidies were to be introduced, their economies would further suffer.

Therefore, such policies must bear in mind the sensitive nature of the economies that the policy is likely to affect. This can be done by categorizing the countries, as done under the WTO, into developed and developing economies and implementing these policies according to the needs of the country and the expected consequences of the policy.

But the concept of such special and differential treatment has faced certain criticism as well. This is predominantly based on the root of this concept. Such leniency is justified on the basis that certain laws applicable to all nations may have an element of exploitation and anti-development. By relaxing such laws when the country under question is a developing country, unfair treatment is doled out to other countries which do not have the privileged tag of being ‘developing’. There also exists a lapse in the system vis-à-vis the criteria that a country must meet in order to be eligible for privileges. As per the current system, a country may decide its own status as either developing or developed. This may lead to paradoxical situations where a country which may not require certain privileges may be put at a discriminatory advantage over other countries by the grant of these privileges. Moreover, if there are laws which have the tendency of being exploitive or harsh, they should be removed as a whole. Furthermore, there needs to be a clear understanding of the distinction between laws which may be negotiable and those which must be binding on all the countries[18]

While the weaknesses in the capacities of developing countries forms the basic reason for the continuous of such differential treatment, such benefits should only be made available to the countries which are ‘low income’ countries and those which may need help to become integrated into the international trade system, or in other words, which are in dire need for trade opportunities. [19]

This results in a paradoxical situation. What about those nations which may fall under the tag of ‘developing’ countries, but in effect be high-income nations? Unless some differentiation is made between these countries, it is not possible to frame an efficient and fair system of special and differential treatment.

Although the introduction of special provisions for developing countries in the WTO policies would benefit the developing countries without affecting the developed countries too much, the counter argument to this lenient treatment is that the opportunity cost that the implementation of these provisions pose to other nations. Many countries are of the opinion that while developmentally these might be desirable, but the opportunity cost to the trade system is massive as compared to the insignificant contribution some of these least developed and developing countries would make to the international trading system. If one was to subscribe to this view, then it would be of more desirable outcome to introduce these provisions at a later stage when the country is in a position to contribute to the international trade system more significantly in return and in the meantime find better avenues which promise greater returns with regard to the attention, finance and human resources that are required for implementation of the special benefits. [20]

Chapter-3
India – EC Case
Since the inception of the WTO in 1995, India has been involved in 33 disputes at the WTO. It has initiated cased against other countries 16 times and has faced complaints against itself 17 times. India is amongst the most frequent users of the WTO dispute resolution system from among the developing country members. Amongst the more recent disputes, India was involved in a dispute with the EU where it contested the tariff concessions granted by the members of the European Communities (EC) to twelve developing countries under its Generalized System of Preferences (GSP). The ground for this dispute was India’s belief that under the WTO structure, discrimination could only be made in favor of least developed and developing countries. Contrary to this, in December 2001, the EC had launched its GSP scheme which had provisions for five different preferential tariff preferences. The effect of this arrangement was that twelve countries received greater tariff reductions as compared to countries like India which created undue difficulties for India’s exports to the EC and took away the benefits given to India under the most favored nation policy. [21]

Conclusion
Special and Differential Treatment at the WTO: It is the privileged treatment offered to developing nations at the WTO based on the understanding that needs of these countries are substantially different from those of developed nations. This principle allows a certain degree of discrimination in favor of developing countries.

The India-EU Dispute: In India contested the European Communities’ Generalized System of Preferences wherein distinction was made between beneficiary countries and twelve countries were granted greater tariff concessions owing to the five different preferential tariff preferences.

The researcher concludes the draft with the mentioning of the relevance of the special and differential treatment for developing and least developed countries. It is essential for these countries to receive such benefits as their resources and services are not comparable to developed countries and such treatment provides an impetus to such countries to produce and prosper.

Bibliography
# Davey, William J., 2001, Letter of June 3, 1997, to Beverley M. Carl, ‘Qualification as a Developing Country’ in Trade and the Developing World in the 21st Century, Transnational Publishers, New York
# Development Gateway available http://topics.developmentgateway.org/trade/rc/BrowseContent.do~source=RCContentUser~folderId=3364 as seen on 26/12/08
# Dhar, B.; Majumdar, A., The India-EC GSP Dispute: The Issues and the Process available at: http://www.ictsd.org/dlogue/2006-01-25/Dhar.pdf as seen on 27/12/08
# Harvard International Review, ‘Not Just Small Change’ in International Trade, Vol. 26 (2) – 2004 available at: http://hir.harvard.edu/articles/1240. as seen on 23/12/08
# Hoekman B., Michalopoulos C., Winters L.A.; Most Favorable and Differential Treatment of Developing Countries: Towards A New Approach in WTO, World Bank Policy Research Paper 3107 available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=636470 as seen on 29/12/08
# International Institute for Sustainable Development, 2003 ‘Special and Differential Treatment’ at http://www.iisd.org/pdf/2003/investment_sdc_may_2003_2.pdf as seen on 29/12/08
# Keck, Alexander and Low, Patrick,Special and Differential Treatment in the WTO: Why, When and How?(January 2004). WTO Staff Working Paper No. ERSD-2004-03. Available at SSRN: http://ssrn.com/abstract=901629
# Lipsey, R.G. & Chrystal K.A., 1999, ‘Growth in Developing Countries’ in ‘Principles of Economics’ 9th Ed., Oxford University Press, New York
# Pratap, Ravindra, WTO AND TARIFF PREFERENCES,VOL.39, Pg-1788
# Priyadarshani,Shishir,2002. Reforming trade in agriculture:a developing country perspective. Trade,environment, and development project 2.
# Ricardo Melendez-Ortiz , sustainable development and environment policy objectives:a case for updating special and differential treatment at WTO.Joint group on trade and competition, The role of “ special and differential treatment” at the trade,competition and development interface, at http://www.oecd.org/dataoecd/49/37/2072318.pdf. as seen on 27/12/08
# SPS AGREEMENT TRAINING MODULE: CHAPTER 6 http://www.wto.int/english/tratop_e/sps_e/sps_agreement_cbt_e/c6s3p1_e.htm AS SEEN ON 22/12/08
# The World Trade Organization, Understanding the WTO: Developing Countries available at:http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm as seen on 16/12/08
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[1]SPS AGREEMENT TRAINING MODULE: CHAPTER 6 http://www.wto.int/english/tratop_e/sps_e/sps_agreement_cbt_e/c6s3p1_e.htm AS SEEN ON 22/12/08
[2] World trade organisation, IMPLEMENTATION OF SPECIAL & DIFFERENTIAL TREATMENT PROVISIONS IN WTO AGREEMENTS AND DECISIONS,pg-3 http://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm as seen on 23/12/08
[3] Lipsey, R.G. & Chrystal K.A., 1999, ‘Growth in Developing Countries’ in ‘Principles of Economics’ 9th Ed., Oxford University Press, New York
[4] Ibid.
[5] The World Trade Organization, Understanding the WTO: Developing Countries available at: http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm as seen on 16/12/08
[6] Davey, William J., 2001, Letter of June 3, 1997, to Beverley M. Carl, ‘Qualification as a Developing Country’ in Trade and the Developing World in the 21st Century, Transnational Publishers, New York
[7] Supra note.5
[8] Priyadarshani,Shishir,2002. Reforming trade in agriculture:a developing country perspective. Trade,environment, and development project 2.
[9] Ricardo Melendez-Ortiz , sustainable development and environment policy objectives:a case for updating special and differential treatment at WTO.
[10] Joint group on trade and competition, THE ROLE OF “ SPECIAL AND DIFFERENTIAL TREATMENT” AT THE TRADE,COMPETITION AND DEVELOPMENT INTERFACE, AT HTTP://WWW.OECD.ORG/DATAOECD/49/37/2072318.pdf. as seen on 27/12/08
[11] Harvard International Review, ‘Not Just Small Change’ in International Trade, Vol. 26 (2) – 2004 available at: http://hir.harvard.edu/articles/1240. as seen on 23/12/08
[12] Development Gateway available at:
http://topics.developmentgateway.org/trade/rc/BrowseContent.do~source=RCContentUser~folderId=3364 as seen on 26/12/08
[13] Pratap, Ravindra, WTO & TARIFF PREFERENCES,VOL.39, Pg-1788
[14] Ibid.
[15] Keck, Alexander and Low, Patrick,Special and Differential Treatment in the WTO: Why, When and How?(January 2004). WTO Staff Working Paper No. ERSD-2004-03. Available at SSRN: http://ssrn.com/abstract=901629
[16] Ibid.
[17] International Institute for Sustainable Development, 2003 ‘Special and Differential Treatment’http://www.iisd.org/pdf/2003/investment_sdc_may_2003_2.pdf as seen on 29/12/08
[18] Hoekman B., Michalopoulos C., Winters L.A.; Most Favorable and Differential Treatment of Developing Countries: Towards A New Approach in WTO, World Bank Policy Research Paper 3107 available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=636470 as seen on 29/12/08
[19] Ibid.
[20] Supra note.10
[21] Dhar, B.; Majumdar, A., The India-EC GSP Dispute: The Issues and the Process available at: http://www.ictsd.org/dlogue/2006-01-25/Dhar.pdf  as seen on 27/12/08

The  author can be reached at: pushkarthakur@legalserviceindia.com

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