Special and Differential Treatment

Special and Differential Treatment Regional Trade Policy Course, June 2006 Raúl Torres Development Division, WTO

Focus of this Presentation • Historical Evolution of ‘Differential and More Favourable Treatment’ • Doha work programme on S&D Treatment • Current Status

Introduction • GATT established in 1947 ( 23 CPs) • No formal recognition of any difference between the CP’s. • Fundamental principle of GATT was that all rights and obligations should be applied uniformly. • Even though 11 out of the original 23 CP’s would today be classified as developing countries, they participated as equal partners

GATT Review Session, 1954-55 • First occasion when provisions were adopted to address the needs of developing countries, as a group within GATT. • Permitted dc’s to derogate from their scheduled tariff commitments, and included • Article XVIII(B), to allow countries at an ‘early stage ofdevelopment’ to use QR’s for BoP purposes. • Article XVIII(C), to allow countries that could only support ‘low levels of living standards’ to impose trade restrictions to support infant industries

Introduction of Part IV - 1964 • Basic objective : dc’s should not be expected to take on obligations inconsistent with their levels of development (Non-Reciprocity) • In 1964 the GATT adopted a specific legal framework to address the concerns of developing countries. • Three new Articles, XXXVI to XXXVIII were introduced in Part IV of GATT dealing specifically with Trade and Development.

What did Part IV provide? • The measures introduced included • provision of more favourable market access conditions to products of export interest to dc’s • introduction of the concept of non-reciprocity; • elimination of restrictions which differentiate unreasonably between primary and processed products • establishment of the CTD to review the application of Part IV and to consider any changes to these provisions to strengthen the objectives of trade & development.

The Tokyo Round–1973-79 • The main focus continued to be tariff reductions • However, many products of export interest to dc’s were either exempted from reduction cuts or were subject to lower reductions • First time an attempt to address NTBs. • Still limited participation of dc’s; developed countries often negotiated exceptions amongst themselves.

The Enabling Clause - 1979 • Enabling Clause introduced during the Tokyo Round • Preferential treatment by developed countries for goods originating from dc’s in the • flexibility in the formation of RTA’s between dc’s; • Preferential treatment for dc’s in other GATT rules dealing with non-tariff barriers; • special treatment to least developed countries in the context of specific measures for developing countries

S&D Treatment in the UR • Certain basic underlying conceptual premises related to S&D treatment emerged during the UR, namely that • dc’s were intrinsically disadvantaged in their participation in international trade; • trade policies that maximised sustainable development in dc’s were not the same as those in developed economies; • any multilateral agreement needed to take account of these weaknesses & differences when specifying rights and obligations

S&D Treatment in the UR • These underlying conceptual premises resulted in S&D provisions in 6 groups • provisions aimed at increasing trade opportunities • provisions which call upon WTO Members to safeguard the interest of dc’s • provisions offering flexibility of commitments • transitional time periods • provisions related to technical assistance • provisions in favour of least developed countries

Special & Differential Treatment • Provisions aimed at increasing trade opportunities -These provisions basically encourage the developed countries to adopt positive measures which would result in increased trade opportunities for developing countries -Article XXXVII of GATT 1994, provided that “.......the developed....[Member] shall to the fullest extent possible..... accord high priority to the reduction and elimination of barriers to products, currently or potentially of particular export interest to... [developing countries] • Legally enforceable .... ?

Special & Differential Treatment • Measures safeguarding the interests of developing countries . These require developed countries Members to take into account the special situation of dc’s before imposing any measure which might affect their trade interests . Article 10:1 of the SPS Agreement states that“In the preparation and application of SPS measures, Members shall take account of special needs of developing country Members, and in particular of the least-developed country Members”. • Is the provision legally enforceable ? There is an obligation to only consider the effects of intended SPS measure but it falls short of obliging them to change the measure even if it impacts negatively on the export interests of dc’s.

Special & Differential Treatment • Article 15 of the Anti-Dumping Agreement “It is recognized that special regard must be given by developed country Members to the special situation of developing country Members when considering the application of anti-dumping duties. Possibilities of constructive remedies provided for by the Agreement shall be explored before applying anti-dumping duties where thy would affect the essential interests of developing country Members”. • Legal enforceability...?Both ‘must’ and‘shall’are mandatory verbs....does that help?

Special & Differential Treatment • Provisions permitting the assumption of lesser obligations by developing countries Example: Agreement on Agriculture Developing countries were asked to assume lesser obligations than their developed partners . Developed Member to reduce their tariffs by 36 per cent over a six year period, while developing countries by 24 per cent over a ten year period. . Minimum tariff reduction on each tariff line: Developed country Members – 15 % Developing country Members – 10%

Special & Differential Treatment • Provisions relating to transitional periods With the exception of Anti-dumping Agreement and Pre-shipment Inspection Agreement, almost all the agreements contain longer transitional periods for dc’s. DEVELOPED DEVELOPING Agriculture: 6 years 10 years TRIPS: 5 years TRIMS: 5 years Customs Valuation: 5 years Are the provisions relating to transitional periods legally enforceable?

Special & Differential Treatment • Provisions relating to technical assistance For example, Art. 9 of the SPS Agreement: “Members agree to facilitate the provision of technical assistance to other Members, especially developing country Members, either bilaterally or through the appropriate international organizations” “Where substantial investments are required in order for an exporting developing country Member to fulfil the sanitary or phytosanitary requirements of an importing Member, the latter shall consider providing such technical assistance”

Concerns withS&D After a few years dc’s felt that in many cases most of the S&D provisions were: • non-binding • ‘best endeavour clauses’ • apparently mandatory, yet de-facto non-binding • only a few provisions were mandatory and binding provisions

Further elaborations of these concerns I. Provisions employing purely discretionary language “contracting parties may accord differential and more favourable treatment to developing countries” (Enabling Clause) II. Best Endeavour Clauses “Members agree to facilitate the provisions of technical assistance to other Members, especially developing country Members” (Article 9 of SPS)

Elaborations of these concerns III. De facto non-binding provisions • Members shall take account of the special and needs of developing country members in preparation and application of new SPS measures (Article 10.1 SPS agreement) • It is recognised that special regard must be given by developed country Members to the special situation of developing country Members when considering the application of anti-dumping measures under this Agreement. (Article 15 of the AD Agreement)

Doha Ministerial Declaration • Ministers at Doha, recognizing that problems existed with respect to S&D treatment set out a work programme in para 44 of the Declaration, which • reaffirmed that S&D is an integral part of the WTO • noted that there are concerns about the implementation of S&D provisions • directed that all S&D provisions should be reviewed to strengthen them and to make them more precise, effective and operational, and • linked this work to the Decision on Implementation related issues and concerns

Doha Ministerial Declaration • The decision on ‘Implementation related Issues and concerns’ mandates the CTD • to identify the S&D provisions which should be made mandatory and the implications of doing so • to examine additional ways to make S&D more effective • to report to the GC with recommendations by July 2002 • to consider how S&D could be incorporated into the architecture of WTO rules.

S&D Work Programme • A very large number (finally 88) Agreement specific proposals were submitted by dc’s, primarily by the African Group and the LDC’s. • Developed countries also made submissions and raised a number of systemic issues including those related to principles and objectives of S&D, definition, utilisation, graduation, universal vs. differentiated treatment. • In its report to the General Council, initially in July’02, and then in December’02, the CTD (SS) could only agree on 4 proposals. CTD sought guidance from GC.

S&D Work Programme • Actual negotiations and drafting of possible language for recommendation to the GC only started in Dec’02 • Members could agree in principle to 4 proposals in December’02 and a further 8 by February’03 • However, most developing countries felt that the agreed language did not make the provisions more precise, effective and operational. • Lack of progress was mainly due to the differences in the interpretation of the mandate

S&D Work Programme • The CTD recommended that the GC provide a clarification on how to give effect to the Doha mandate. • There was no consensus in the GC to provide this clarification • The GC only took note of the report and asked its Chairman to undertake consultations on how to take forward the mandated review of all S&D provisions.

Negotiations under the GC Chair • The Chairman of the General Council put forward an approach based on two fundamental premises: • all proposals would be addressed without prejudice to the outcome, and that • an informal categorization of the proposals was necessary to make the work more efficient. • Members also agreed to referrals and to consider possible changes in the existing language • Accordingly, all the 88 Agreement-specific proposals were divided into three categories.

Negotiations under the GC Chair • Category I included the 38 proposals on which there was greater possibility of agreement. • Category II had 38 proposals made in areas currently under negotiation– for referral. • Category III included 12 proposals on which there appeared to be a wide divergence of views. • After protracted negotiations Members agreed to make 24 recommendations w.r.t. 25 proposals. A further 3 were added on at Cancun (Annex C)

Cancun-Hong Kong Phase • Members faced with three basic questions • what Members wished to do with the 28 proposals on which they had already agreed to in principle; • how they felt the current discussions on S&D could be made more productive; • what suggestions they had on the way forward to fulfil the Doha mandate

Cancun-Hong Kong Phase....July Decision • Review all the outstanding Agreement-specific proposals and report to the GC with clear recommendations for a decision, by July 2005; and • address all other outstanding work, including the cross-cutting issues & the monitoring mechanism, and report, as appropriate, to the GC • Work on Category II proposals to be expeditiously completed. Those WTO bodies were required to report to the General Council, with clear recommendations for a decision no later than July 2005. Instructed the Special Session to:

Cancun-Hong Kong Phase • Flexibility in WTO rules should enable the development of developing countries; • These flexibilities should be made available to those Members in need of them to address particular development challenges, whilst ensuring that there is no a priori exclusion of any developing country from such a situational flexibility; In an attempt to move forward and break the existing impasse the Chairman put forward a conceptual approach built along the following elements:

Chairman’s Approach (2) • There should be a multilateral monitoring of the use of these flexibilities; • Enhanced capacity-building programmes would need to be developed to assist countries to implement WTO rules and address supply‑side constraints; • The flexibilities in the rules would need to be consistent with a multilateral rules based system.

Chairman’s Approach (3) • Redraft the proposal being addressed or merge it with other similar proposals • Address the underlying development issues raised by the proposal in the context of some of the cross-cutting issues. The intention was to apply the elements of this approach to the proposals and re-examine them with two possible non-exclusive options in mind:

Member’s Views on Chair’s Approach • Proponents: aimed more towards a review of the basic concept of S&D rather than making the Agreement-specific proposals more precise, effective and operational as mandated by paragraph 44 . • How situational flexibility could be put into practice considering the difficulty in predetermining all possible situations. Situational flexibility approach could lead to an implicit differentiation among developing countries. • Discussions on the approach have been exhausted and if the July deadline is to be met then work needs to resume on the remaining Agreement-specific proposals. It has been agreed that in carrying out this work the proposals made by the LDCs will be addressed as a matter of priority. • The developed countries were happy to go along with Chair’s approach.

LDC Proposals (Annex F) • In the run up to HK Ministerial Members focused their work on 5 LDC Agreement-specific proposals which included proposals on theUnderstanding in Respect of Waivers of Obligations under the GATT 1994, the Enabling Clause, the Agreement on Trade-Related Investment Measures and the Decision on Measures in Favour of Least-Developed Countries. • These proposals with text in brackets were transmitted to Ministers at HK and finally agreement was reached on adoption of Annex F.

What happened at Hong Kong • A package for LDCs emerged as the most important and concrete outcome of the conference • And even from amongst the LDC proposals the decision on the one relating to providing all LDCs bound duty free and quota free market access for all the products was by far the most important.

LDCs Proposal • Understanding in Respect of Waivers of Obligations under the GATT 1994 (23) Proposal by the LDCs - TN/CTD/W/4/Add.1 • "The Understanding in Respect of Waivers of Obligations under the GATT 1994 should be clarified to provide that request for waivers from least-developed countries of their obligation under the GATT 1994 and other multilateral agreements shall be considered sympathetically and waivers granted expeditiously.“ • Chair’s Text: • (i) The General Council agrees that requests for waivers by least-developed country Members under Article IX of the WTO Agreement and the Understanding in respect of Waivers of Obligations under the GATT 1994 [shall] [should] be given positive consideration and a decision taken within 60 days. • (ii) When considering requests for waivers by other Members exclusively in favour of least-developed country Members, the General Council agrees that a decision [shall] [should] be taken within 60 days, or in exceptional circumstances as expeditiously as possible thereafter [,taking into account the interests of other developing Members [so as not to affect them]].

LDCs Proposal • Agreement on Trade-Related Investment Measures – Whole Agreement :(84) Proposal by the LDCs - TN/CTD/W/4 • ‘LDCs should be exempted from the disciplines of the Agreement on TRIMs’ • Chair’s Text: • LDCs shall be allowed to maintain on a temporary basis existing measures that deviate from their obligations under the TRIMs Agreement. For this purpose, LDCs shall notify the CTG of such measures within one year, starting [x]. LDCs will be allowed to maintain these existing measures until the end of a new transition period, lasting [x] years. This transition period may be extended by the CTG under the existing procedures set-out in the TRIMs Agreement, taking into account the individual financial, trade, and development needs of the Member in question and [possible effects on other Members]. • LDCs shall also be allowed to introduce new measures that deviate from their obligations under the TRIMs Agreement. These new TRIMs shall be notified to the CTG no later than [x] months after their adoption. The CTG shall give positive consideration to such notifications, taking into account the individual financial, trade, and development needs of the Member in question and [possible effects on other Members], and take a decision within [x] months. The duration of these measures will not exceed [x] years, renewable subject to review and decision by the CTG. • Any measures incompatible with the TRIMs Agreement and adopted under this decision shall be phased out by year [x].

Current Status • Special Session has focused work on remaining Agreement-specific proposals in Category I. • Work has also begun on cross-cutting issues • First reading of Category III proposals has been undertaken in 1st June • The Chair is intensifying coordination efforts with other bodies to whom Category II proposals have been referred.

Special and Differential Treatment