SPECIAL AND DIFFERENTIAL TREATMENT: AN UNCTAD ASSESSMENT

1. UNCTAD SPECIAL AND DIFFERENTIAL TREATMENT:AN UNCTAD ASSESSMENT UNCTAD Commercial Diplomacy Programme April 2000

2. UNCTAD THE BASIC IDEAS BEHIND THECONCEPT OF SPECIAL AND DIFFERENTIAL TREATMENT (SDT) • SDT deals with compensating for structurals inequalities between developing and developed countries in terms of: • share of world trade; • access to financing; • access to technology; • infrastructure weaknesses.

3. UNCTAD THE BASIC IDEAS BEHIND THECONCEPT OF SPECIAL AND DIFFERENTIAL TREATMENT (SDT) SDT also tries to compensate for the fact that there is no direct link between trade liberalization, participation in the globalization process and economic growth (Latin America presented this argument in the Havana Conference in 1947, leading to the establishment of art.XVIII of GATT , which allows for tariff protection and quantitative restrictions in case of balance of payment difficulties, and art.XXXVI:8-Part IV of 1964 on the “non-reciprocity”).

4. UNCTAD BASED ON THE HYPOTHESIS THAT STRUCTURAL INEQUALITIES MUST BE COMPENSATED FOR, VARIOUS MECHANISMS WERE DESIGNED SUCH AS: • At the level of North-South trade: • the non-reciprocity in market access; • the Generalized Sistem of Preferences (GSP); • the Common Fund for Commodities. • At the level of national trade policies : • production and export subsidies; • tariff and non-tariff protection to the national industry.

5. UNCTAD AIDE MÉMOIRE ON THE GENERALIZED SISTEMS OF PREFERENCES • UNCTAD II (New Delhi, 1968) led to the adoption of the GSPs given by industrialised countries. • The GSP is an exception to the GATT MFN principle and authorised by a “waiver”, not by Part IV of GATT; • Preferences within the GSP are unilateral concessions that can be modified (i.e. not “bound” commitments); • The “Decision on differential and more favourable treatment”, adopted during the Tokyo Round (“Enabling Clause”) legitimatizes the GSPs, regional agreements among developing countries (DCs) and the special treatment for LDCs.

6. Longer compliancy terms for commitments (until 2005); more flexible criteria and/or thresholds on agreements on subsidies and countervailing duties; technical assistance; certain exceptions for compliancy with norms. But, Although the GSP was maintained, preferences were eroded due to tariff reductions; and domestic support measures could not be as extensive as before the Uruguay Round with the exception of agriculture. UNCTAD SDT INSTRUMENTS AGREED UPON AT THE URUGUAY ROUND:

7. UNCTAD DISTINCTIONS BETWEEN DEVELOPING COUNTRIES WERE INTRODUCED DURING THE 80S, ALLOWING FOR DIFFERENCES IN SDT: • Least developed countries (LDCs) • Landlocked countries • Island countries • Small economies • Net food importing countries At the same time, the concepts of “graduation” and reciprocity were strengthened.

8. UNCTAD ARGUMENTS AGAINST SDT: Arguments against SDT were raised during the 80s in industrialized as well as in developing countries: At the level of trade negociations: • diversity among developing countries makes the design of SDT mechanisms difficult; • SDT is part of the “ideological baggage” superseded by the processes of liberalization and globalization; • SDT works as an unnecessary “crutch” for developing countries as it hinders their insertion in world trade on competitive terms; At the national level in developing countries: • SDT has favoured some enterprises, distorted trade, and encourages subsidies which are no longer sustainable.

9. UNCTAD ISSUES FOR REFLECTION WHEN DISCUSSING THE USE AND EFFECTIVENESS OF THE GSP: Possible points of view to be discussed: • The elimination of the GSP and the reintroduction of tariffs on products from developing countries would work against the very logic of free trade; • There is no clear evidence that the elimination of the GSP for a developing country would favour exports of another developing country; • Nor is there any evidence that benefits from the GSP have discouraged countries from increasing trade liberalization.

10. UNCTAD IN THE ON-GOING WTO NEGOTIATIONS TWO CHALLENGES HAVE EMERGED FOR DEVELOPING COUNTRIES CONCERNING SDT: • To consolidate a “political platform” in favor of SDT, acknowledging the necessity of mechanisms and criteria to compensate for inequalities between developing and industrialized countries. • To update the concept of SDT and its operational instruments, according to the new world economic context and national economic policies.

11. UNCTAD REQUIREMENTS TO UPDATE THE SDT: • An evaluation of costs and benefits of the SDT to identify the adequate instruments, based on criteria such as the: • importance of preferential access to markets; • need for longer implementation periods and greater flexibility in the implementation of multilateral norms; • impact and utility of technical assistance provided for in the SDT; • analysis of relevant examples (Andean Community, FTAA, Mercosur, Lomé IV, European Union, treatment to least developed countries, etc.).

12. UNCTAD EXAMPLE OF SDT IN THE WTO: THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) • The structure of “positive lists” allows countries to choose, according to their level of development, the pace and extent of their trade liberalization by allowing them to determine the sectors and modalities to be liberalized. • The impact of GATS on countries will depend very much on their capacity to negotiate offers and concessions by service sectors according to their development level.

13. UNCTAD EXAMPLE OF SDT IN THE WTO: THE GENERAL AGREEMENT ON TRADE IN SERVICES • Article XIX.2 of GATS acknowledges the imbalance between developing and industrialized countries as it allows developing countries greater flexibility to open fewer sectors according to their development level (the right to non-reciprocity is acknowledged).

14. UNCTAD EXAMPLE OF SDT IN THE WTO: THE GENERAL AGREEMENT ON TRADE IN SERVICES • Article IV of GATSacknowledges asymmetry and the need for industrialized countries to compensate for imbalances in trade of services by: • strengthening the national capacity of DCs’ effectiveness and competitiveness; • improving DCs’ acccess to distribution channels and information networks; • liberalising market access to sectors and modalities of interest for DC’s exports.

15. UNCTAD EXAMPLE OF SDT IN THE WTO: GATS ANNEX ON TELECOMMUNICATIONS • acknowledges the essential role of telecommunications for the participation of DCs on the trade of services and provides for the transfer of information to DCs (sections 6 c and d) concerning the telecommunications services and information technology needed for development: the transfer of technology clause could serve as a reference for other agreements (to link trade liberalization with technology transfer: refer also to art.66.2 of TRIPS).

16. UNCTAD EXAMPLE OF SDT IN THE WTO: the “QUAD” proposal (US, Canada, EU and Japan) April 7, 2000 • The background: • Singapore Ministerial Declaration (1996); • the proposal on LDCs in Seattle (1999); • the language adopted at UNCTAD X in Bangkok (2000). • The Post-Seattle context: • developed countries need to build confidence and credibility among developing countries; • developed countries need to provide concrete results at the Conference on LDCs (Brussels, 2001).

17. UNCTAD THE CONTENT OF THE QUAD PROPOSAL: Provides for preference measures for LDCs and DCs concerning: • market access (for LDCs); • the implementation of certain Uruguay Round agreements (for DCs and LDCs); • technical assistance with “adequate resources”; • measures to improve “internal and external transparency” of the WTO. Divergencies on this “package” give an idea of the difficulties of reaching concensus, even among QUAD members, and of the minimum negotiating margins of DCs. After a consultancy process, it is expected that the General Council of the WTO on May 3 will study this proposal together with a counter-proposal of LDCs.

18. UNCTAD MEASURES PROPOSED BY QUAD ON MARKET ACCESS: Free access to all markets for “basically all products according to domestic requirements and international agreements”, which implies that: • current restrictions on textiles and agricultural products are maintained, but the SDT provided for under the new Lomé Convention (EU) and in the legislation for Sub-Saharan Africa (US) and for the Caribbean is extended to all LDCs; • current rules of origin are maintained; • commitments are not “bound”.

19. UNCTAD MEASURES PROPOSED BY QUAD ON THE IMPLEMENTATION OF AGREEMENTS: • TRIMS and Customs Valuation: To act “with flexibility and in a cooperative manner in response to properly grounded requests from DCs for the extention of transition periods”; an extension may be granted for a limited period of time, taking into account implementation plans presented by requesting countries. Requests will be considered on a case by case basis, in accordance with current WTO agreements. Requests from LDCs are expected to receive special consideration.

20. UNCTAD MEASURES PROPOSED BY QUAD ON THE IMPLEMENTATION OF AGREEMENTS: • Agreement on sanitary and phytosanitary measures (SPS): an additionalextension of 3 years for LDCs, together with an implementation programme. • Preferential measures for DCs on the implementation of agreements on technical barriers (TBT), SPS, Agriculture and services, such as: • measures on norms and certification; • identification of technical assistance needs; • implementation of article IV of GATS; • measures to improve the effectiveness of the Marrakech Ministerial Declaration on the “possible negative impacts of the Reform Programme for LDCs and net food importing countries”; • Revise the functioning of measures in article IV. Establishment of a working programme on the implementation of the Uruguay Round agreements (a working plan has been agreed by the WTO General Council on 3 May 2000).

21. UNCTAD ANOTHER SDT EXAMPLE:THE NEW “PARTNERSHIP AGREEMENT” ACP-EU (COTONOU, JUNE 2000) • It emphasizes support for regional and sub-regional integration among DCs. • Trade preferences are maintained for 8 years. • The finalization of “partnership” agreements (from September 2000 on) is expected before 2008, according to WTO rules. • Duty-free to “essentially all ACP products” from 2005 onwards.

22. UNCTAD POSITIVE AGENDA AND THE SDT: • The issue of “graduation”(the right to SDT is lost when a certain development level is attained): it would be possible to graduate sectors instead of countries, that is, according to competitiveness attained on certain sectors or products, instead of country classifications based on indicators such as income per capita. This implies the establishment of multilateral evaluation criteria of competitiveness by sectors or products for all developing countries, or thresholds under which DCs would not be subject to restrictions or protectionary measures.

23. UNCTAD POSITIVE AGENDA AND THE SDT: • The possibility to introduce the generalized system of preferences in binding trade rules in order to assure their stability and to ensure that they are not applied only at the discretion of industrialized countries.

24. UNCTAD POSITIVE AGENDA AND THE SDT: • To avoid conditions to attain SDT: following the example of international institutions, some industrialized countries have suggested that SDT should only be granted to countries which adopt certain economic policies. This raises the question of how to identify an “adequate” economic policy for a developing country.

25. UNCTAD POSITIVE AGENDA AND THE SDT: • The need to take into account the fact that some multilateral agreements have provisions that favour developed countries: for example, the agreement on agriculture allows for non-actionable subsidies, which industrialized countries have the resources for, unlike developing countries.

26. UNCTAD POSITIVE AGENDA AND THE SDT: • The need to maintain “room for manoeuvre” in agreements such as TRIPS and TRIMS for the implementation of active development policies including performance requirements. GATS allows the use of performance requirements to be applied to foreign investments, which can be useful to support development in certain sectors.

27. UNCTAD POSITIVE AGENDA AND THE SDT: • Extention of the transition period for the implementation of certain agreements i. e. subsidies, TRIPS and TRIMS not only on an ad hoc basis to individual requests but also on a “moratorium” basis that can be applied to all DCs and linked to significant measures of technical assistance.

28. UNCTAD POSITIVE AGENDA AND THE SDT: • The identification and effective implementation of technical assistance measures which support the development of developing countries’ export supply (for example, article IV of GATS).

29. UNCTAD POSITIVE AGENDA AND THE SDT: • Backstopping of SDT in trade by providing access to development financing for the DC’s exports: that would require “coherence” between trade liberalization and development financing (i.e. between the WTO and the financial institutions).

30. UNCTAD SOME CONCLUDING REMARKS It is important to: • defend the concept of SDT for all DCs; • establish mechanisms and operational criteria which take into account: structural inequalities (which cannot be solved with transition periods), supply weaknesses of DCs; the results of the SDT from the point of view of the insertion of DCs in world trade (for example, through an assessment of competitiveness at the level of sectors or products).