The WTO and Development

The Political Economy of Policy Reform: Essays in Honor of J. Michael Finger The WTO and Development Sam Laird, Raed Safadi, Alessandro Turrini,

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Article information: To cite this document: Sam Laird, Raed Safadi, Alessandro Turrini, "The WTO and Development" In The Political Economy of Policy Reform: Essays in Honor of J. Michael Finger. Published online: 09 Mar 2015; 221-262. Permanent link to this document: http://dx.doi.org/10.1016/S0573-8555(04)70010-3 Downloaded on: 31 May 2017, At: 09:05 (PT) References: this document contains references to 0 other documents. To copy this document: [email protected] The fulltext of this document has been downloaded 101 times since 2015*

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The Political Economy of Policy Reform D. Nelson (Editor) © 2004 Elsevier B.V. Allrightsreserved. DOT: 10.10167S0573-8555(04)70010-3

CHAPTER 10

The WTO and Development

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Sam Lairda'b'*, Raed Safadi6'* and Alessandro Turrinia,c,d'* "Trade Analysis Branch, Division for International Trade, UNCTAD, Geneva, Switzerland ••University of Nottingham, Nottingham, UK c European Commission, Brussels, Belgium *CEPR, Washington, DC, USA "Trade Policy Division, Trade Directorate, OECD, Paris, France

Abstract Development issues are at the centre of the crisis confronting the WTO system since Seattle. While development objectives appear central to the WTO, in practice many provisions are in the form of best endeavours. The current WTO negotiations seem to give new impetus to addressing development issues, but much depends on implementation. While attention seems to be focused on patching the existing system, a more fundamental re-think of the trade and development agenda may be required.

Keywords: World Trade Organization (WTO), developing countries, generalised system of preferences, special and differential treatment J EL classification: F13 10.1. Introduction The crisis in the WTO system that has been evident since Seattle and in the preparations for the Doha Ministerial Meeting in November 2001 has no

* The views expressed in this chapter are those of the authors, and do not necessarily represent the views of the organisations for which they work nor the member states of those organisations. *E-mail addresses: [email protected] (S. Laird), [email protected] (A. Turrini), [email protected] (R. Safadi).

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single explanation, covering the treatment of standards, environment, agriculture, labour standards, investment, and competition policy among others. But the development issue is perhaps the oldest and most important. Since the US Congress failed to ratify the bill to establish the International Trade Organisation (ITO) in 1950, there have been various attempts to try to draw into the international economic system issues that were covered by the Havana Charter: employment and economic activity, economic development and reconstruction, restrictive business practices, intergovernmental commodity agreements and the establishment of the ITO. The GATT rules, established in parallel with the ITO negotiations, have been amended on a number of occasions, notably in 1954-1955,1964 and 1979 to try to fill the lacuna on development. This process continued with the establishment of the WTO whose objectives have some similarities to the Havana Charter. Thus, the Marrakech Agreement, establishing the WTO, sets out the objectives of the organisation that include raising living standards, full employment, steadily growing real income and effective demand, expanding production and trade in goods and services, allowing optimal use of the world's resources in accordance with sustainable development. Under the Agreement, WTO Members also indicated their intention in fulfilling these objectives to seek, inter alia, "to enhance the means for doing so in manner consistent with [the] respective needs and concerns [of the Parties] at different levels of development". The Agreement also recognises that "there is need for positive efforts designed to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of international trade commensurate with the needs of their economic development". However, while trade and development objectives appear central to the objectives of the organisation, in practice many of the specific provisions are couched in 'best endeavours' terms that have little legal force (Kessie, 2000). This is one of the main reasons for the disillusion that many developing countries have manifested in relation to the results of the Uruguay Round. Most notably they have argued that the expected benefits were not realised, e.g. back loading or the application of special safeguards, rules of origin and anti-dumping measures in the Agreement on Textiles and Clothing (ATC) have offset the promised gains. They argue that inadequate account was taken of the time, cost and capacity to meet WTO commitments, e.g. in Customs Valuation or TRIMS. The Dispute Settlement Mechanism (DSM) is expensive and requires considerable expertise to use, and controversy has been stirred by certain decisions of the DSB and Appellate Body. The TRIPS Agreement is widely recognised to have posed a considerable burden on developing

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countries, and a controversy has arisen over the appropriateness of locating intellectual property matters in a trade policy setting. Despite the eight rounds of multilateral negotiations, tariff and non-tariff barriers remain heavily stacked against the exports of the developing countries. In short, there is a view that, despite the stated objectives, the WTO is systemically biased against development. Since Seattle, the WTO has attempted to resolve a number of issues that developing countries insisted need to be addressed before they were willing to contemplate a new round of trade negotiations. The package of decisions at Doha goes some way in addressing these issues, and the main Ministerial Declaration seeks "to place the needs and interests [of the developing countries] at the heart of the [WTO] Work Programme..." Positive efforts are to be made "to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development". Indeed, the declaration is replete with references to taking account of the needs and interest of developing countries and their need for technical assistance to allow for their full participation in the work programme. There is also to be an examination of the provisions that impart special and differential (S&D) treatment to developing countries "with a view to strengthening them and making them more precise, effective and operational". How successful will the Doha texts be in re-orienting the WTO system towards development?1 Much depends on how WTO Members respond to the exhortatory phrases on development, and this is something that will be tested in the work programme. However, the whole discussion since Seattle on the implementation of Uruguay Round commitments raises wider questions about the treatment of development in the WTO system. Are the various patches to the GATT and WTO sufficient to take care of the needs of development? Are the best endeavours clauses in the Doha Declaration enough? Or is there a need to recast the architecture of the WTO system along the lines of the Havana Charter so that trade serves development - in the words of Dani Rodrik "trade as if development really mattered". In posing these questions, we do not seek to challenge the view that trade liberalisation can contribute to development in the longer term, nor do we question the need for a rules-based system - far from it. Developing countries can gain from both liberalisation and better governance of which the rules-based system is an important component. However, there is little 1

For a discussion, see Laird (2002).

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doubt that liberalisation can entail short-term adjustment costs - a question of timing and sequencing. Taking account of this dimension as well as market imperfections and externalities, it seems reasonable to ask whether adequate space exists within the system to take account of needs and capacities of developing countries. Let us also recall the context of the discussion - apart from that of establishing a new agenda for multilateral negotiations. While developing countries as a whole have been able to increase their share of trade in the last 20 years, the gains have not been evenly distributed, and the leastdeveloped countries (LDCs) have seen their share of world trade decline (WTO, 2000). Developing countries that were able to diversify their production and trade towards manufactures have done better, while commodity-dependent countries have done worse. The East Asian crisis, followed by that in Russia and Brazil, led to a challenging of the Washington consensus, which has to some extent been re-cast to take greater account of governance issues. Recent economic crises have highlighted the vulnerability of the developing countries whose trade is more volatile than that of the developed countries. Against this background, it is valid to ask whether a more fundamental re-think of the trade and development agenda is required. 10.2. Developing countries in the multilateral trading system At the time of the establishment of the GATT, 11 out of 23 founding contracting parties were developing countries. Today more than two-thirds of the WTO current 147 members are developing countries. However, despite extensive references in the WTO Agreements to special provisions, rights and obligations accorded to developing countries, there is no official definition of what constitutes a 'developing country', and such status is in principle self-defined.2 On the other hand, there is an official list of UNdesignated LDCs that includes a total of 49 countries, of which 29 are WTO Members. The original GATT was not conceived as a development institution, but as a set of rules for tariff negotiations, intended to operate as part of the illfated ITO. S&D treatment for developing countries came about through a number of amendments (South Centre, 1999; Whalley, 1999; Pangestu, 2000). For example, Article XVIII of GATT, which derived from Article 2

However, this does not imply automatic acceptance of that status by other members. GSP beneficiaries are designated unilaterally by individual donors. In accession negotiations, the conditions of entry may vary by agreement.

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13 of the Havana Charter establishing the ITO, was revised in the 19541955 Review Session to give developing countries the right to protect infant industries in addition to the existing right to use trade restrictions for balance-of-payments purposes. Article XXVIII bis, concerning tariff negotiations, was also added after the 1954-1955 Review Session and provided flexibility for developing countries to assist their economic development. Part IV of the GATT, added in 1964, recognised the special needs of developing countries in the trading system, but much of the language was in 'best endeavours' terms. The Enabling Clause - the Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries - was added in 1979 at the end of the Tokyo Round, to provide legal cover for the Generalised System of Preferences (GSP), for regional arrangements among developing countries, and for special treatment in favour of the LDCs. Two other features of the Enabling Clause deserve mention here. These are the juxtaposed statements on reciprocity and graduation. On the one hand, the Enabling Clause states that industrial countries do not expect to receive reciprocal commitments from developing countries that are inconsistent with the latter's individual development, financial and trade needs. On the other hand, the Enabling Clause also states that developing countries expect to participate more fully in the framework of GATT rights and obligations as their development and trade situation improves. The flexibility granted to developing countries, under GATT Article XXVIII bis in tariff negotiations, was used by the developing countries in past multilateral negotiations to limit their commitments. It is one of the first indications of differential and non-reciprocal treatment; Paragraph 3 states that negotiations shall be conducted on a basis which affords adequate opportunity to take into account, inter alia, "the needs of lessdeveloped countries for a moreflexibleuse of tariff protection to assist their economic development and the special needs of these countries to maintain tariffs for revenue purposes; and all other relevant circumstances, including the fiscal, developmental, strategic and other needs of the contracting parties concerned". However, the flexibility envisaged by Article XXVIII bis is not automatic and depends on acceptance by partners in a negotiation. In the Uruguay Round there was an important shift in perception, particularly by developing countries about S&D treatment (Safadi and Laird, 1996; Whalley, 1999). Partly because of their own reforms and partly as a result of disillusionment about the value of S&D, developing countries participated actively in the Uruguay Round, offering a number of concessions and accepting a wide range of obligations. To some extent, the increase in the level of obligations was the result of pressure by the developed countries, but many developing countries also felt that

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the exercise of flexibility in earlier negotiations meant that their exports were largely excluded and it was necessary to make offers in order to obtain improved access for their exports. A number of them saw this as a means of extending and binding their unilateral reforms of the last 10-15 years to increase their welfare gains and attract FDI through the enhanced credibility of their trade regimes. As agreed in the Uruguay Round, S&D treatment was mainly expressed as a series of transition measures, certain exemptions, best endeavours by developed countries and technical assistance. In the tariff negotiations, developing countries were granted a longer transition period to reduce tariffs and lower proportional reductions. Thus, while developed countries cut their industrial tariffs by 38% and agricultural tariffs by 34%, developing countries made tariff reductions of 34% for industrial products and 24% for agriculture. Both groups of countries cut their industrial tariffs in six equal annual instalments, but in agriculture the developing countries had 10 years to make the cuts, while the developed countries completed the cuts in 6 years. Agriculture-binding coverage was extended to all products without exception for all WTO Members, but, while developing countries substantially increased their binding in industrial products they generally did not increase this to 100%, as is the case for almost all industrial products in the developed countries (OECD, 1999). In short, S&D up until the Uruguay Round rested on two pillars. One conferred on developing countries special treatment under the rules and preferential access to OECD markets. Non-reciprocity in trade negotiations and graduation formed the other pillar. The Uruguay Round chipped away at the two pillars of S&D, though neither was completely stripped away. Preferential access continues to apply independently of the outcome of the Uruguay Round but the value of preferences is much reduced as a result of tariff reductions in multilateral negotiations as well as the growth of regional trade agreements. As a result of the Single Undertaking of the Uruguay Round, all WTO Members had to accept all Agreements as a package (except for the Agreements on Government Procurement and Civil Aircraft), whereas previously GATT contracting parties could opt out of a number of the Tokyo Round Agreement. In recognition of special difficulties in implementation of some of the agreements and associated adjustment costs, additional S&D provisions were introduced. More benefits were targeted towards the LDCs, the net food importing developing countries (NFIDCs), and Annex VII Countries (defined as those with a per capita income less than $1000). In various agreements, provisions were added that developing countries had to take special account of the needs of developing countries in the application of the particular agreement - although, as noted, many such provisions

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took the form of 'best endeavours', rather than firm legal commitments. Most of the WTO Agreements also included extended transition periods for the developing countries, and even longer transition periods for the LDCs, as a form of S&D treatment. All told, there are now some 155 S&D provisions in the WTO (WTO, 2001a). In essence, the Uruguay Round, while recognising the importance of development in its preamble, represents - most markedly through the Single Undertaking - a step towards a single tier system of rights and obligations. Apart from the 'best endeavours' clauses, S&D treatment is not seen as a permanent recognition of the needs of the developing countries while they remain as such, but rather as a transitional set of measures over specifically defined time periods to allow developing countries to take on the same level of obligations as the developed countries. As such, S&D provisions have in effect triggered a debate on the special problems and barriers that developing countries face as they seek their fuller integration into the world economy (OECD, 2001). However, by including additional benefits in favour of the LDCs, Annex VII countries and the NFIDCs, the Uruguay Round has also opened the door on the concept of tiering of S&D benefits across different groups of developing countries. 10.3. Developing countries' concerns The WTO Secretariat has classified the different provisions included in S&D under six main headings: (1) provisions aimed at increasing trade opportunities; (2) provisions that call upon WTO Members to safeguard the interest of developing countries; (3) flexibility of commitments; (4) transitional time periods; (5) technical assistance; and (6) provisions relating to LCD Members (WTO, 2001a). As will be described below, developing countries have raised concerns under each of the headings. 10.3.1. Provisions to increase trade opportunities 10.3.1.1. Preferential access - GSP The GSP is the most extensive and explicit expression of an attempt to use trade preferences as a tool of development. The underpinnings of the GSP were largely based on Prebisch and Singer's work on the secular decline in terms of trade for agricultural commodities and the perception that only manufacturing could provide stability and jobs in developing countries.3 3

For an early history, see UNCTAD (1985).

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The Prebisch-Singer hypothesis led to two important policy prescriptions: sectoral intervention favouring import-competing manufacturing industry (import-substitution industrialisation) and the idea of creating nonreciprocal tariff preferences to foster manufactured exports from the developing countries. (This is one of the reasons for the relatively low coverage of agricultural products in GSP schemes, as discussed later.) The idea of non-reciprocity became an issue in the preparation of the Kennedy Round of Multilateral Trade Negotiations with the increase in the number of developing countries that were becoming GATT contracting parties. This led to the addition in 1965 of Part IV on Trade and Development, which recognised the need for a "rapid and sustained expansion of the export earnings" of the developing countries and encouraged "positive efforts designed to ensure that [developing countries] secure a share in the growth of international trade commensurate with the needs of their economic development" by developed countries. Part IV also recognised the need to "provide in the largest possible measure more favourable and acceptable conditions of access to world markets" for their limited range of primary exports, including "measures to attain stable, equitable and remunerative prices". It also stated that the "rapid expansion of the economies of the [developing countries] will be facilitated by a diversification of the structure of their economies... and the avoidance of an excessive dependence on the export of primary products". However, Part IV did not fully exempt developing countries from reciprocity. Article XXXVI: 8 states that "The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties". However, the Note to Article XXXVP.8 makes it clear "that the phrase 'do not expect reciprocity' means, in accordance with the objectives set forth in this Article, that the less-developed contracting parties should not be expected, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs, taking into consideration past trade developments". The GSP was proposed by Dr Prebisch, then Secretary-General of UNCTAD, as a non-reciprocal system of tariff preferences in favour of the developing countries, at UNCTAD I in 1964. The arguments were essentially: MFN treatment did not- provide equality with domestic producers or regional trade partners unless set at zero; MFN treatment did not take account of inequality in economic structure and levels of development; and, because negotiations were conducted on the basis of reciprocity and the MFN principle, developing countries* exports continued to face high tariffs. Preferences were seen as helping to

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overcome these disadvantages. After overcoming divergences of view and considerable work on the practical details, Prebisch's proposals were subsequently adopted as a principle at UNCTADII in New Delhi in 1968. The compromise was that the Conference "agrees that the objectives of the generalized, non-reciprocal, non-discriminatory system of preferences in favour of developing countries should be: (a) to increase their export earnings; (b) to promote their industrialization; and (c) to accelerate their rates of economic growth".4 In the earliest discussions, some flexibilities were discussed and these have become de facto part of operational schemes. For example, it was noted that "...the industrial countries could establish a quota for admitting manufactured goods from developing countries free of duty, but they could exclude from these preferences a schedule of items constituting a reasonable percentage of the total goods they import".5 And "all the developing countries, irrespective of their level of development, would be eligible to avail themselves of the preferential system up to the amount of the relevant quota. But there would have to be a periodic review of the flow of exports; and if the exports from one or more countries increased so much that they did not leave sufficient room for those from others, equitable solutions should be sought". "Special preferences should be granted to the less advanced developing countries". It was also accepted that, after preferences had helped the developing countries "to prevent or rectify the structural imbalance in their trade", they "will gradually have to disappear". That was the concept of 'graduation': that developing countries becoming advanced would no longer benefit from the GSP. Finally, it was recognised that, while developing countries would not offer 'conventional reciprocity', as a result of preferences they would be able to import more than if the preferences had not been granted. Thus, irrespective of the subsequent legal texts, the early discussion already envisaged quota limits, graduation, special preferences for LDCs and the eventual phasing out of preferences. In order to allow the GSP system to become legally operational, on 25th June 1971, the GATT Contracting Parties decided to waive the provisions of Article I of the GATT for a period of 10 years to the extent necessary to permit contracting parties to accord preferential tariff treatment to products originating in developing countries and territories.6 This Decision refers to "generalized, non-reciprocal, non-discriminatory preferences beneficial

4 5 6

Conference resolution 21 (II). UNCTAD (1964). Italics in original. GATT, BISD 18S/24.

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to the developing countries". Finally, on 28th November 1979, following the conclusion of the Tokyo Round in one of the 'framework agreements', the Contracting Parties adopted the Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (the 'Enabling Clause') which provided a legal basis (other than a waiver) for the granting of trade preferences, tariffs and non-tariff measures, by developed contracting parties in favour of developing countries, and special treatment of the LDCs in the context of any general or specific measures in favour of developing countries.7 The Enabling Clause, as a decision of the GATT Contracting Parties, became part of the WTO system under provisions of paragraph 1 of the GATT 1994. The Enabling Clause therefore constitutes the legal basis by which individual WTO Members may unilaterally grant GSP preferences to developing countries.8 Based on the permissive rather than mandatory language of the Decision, preference givers usually consider that they may also unilaterally modify, extend or withdraw such preferences, including the coverage of beneficiaries. Developing countries often argue that this creates a degree of uncertainty about the scope and duration of preferences, mitigating the benefits. Some such countries have therefore suggested the binding of preferential rates or margins to increase the security of GSP benefits.9 WTO Members which grant GSP preferences under the Enabling Clause include: Australia, Belarus, Bulgaria, Canada, the Czech Republic, the European Communities, Hungary, Japan, New Zealand, Norway, Poland, Russia, the Slovak Republic, Switzerland, and the United States.10 The scope for joint action by contracting parties (WTO Members) was also envisaged in Footnote 2 to Paragraph 2 of the Enabling Clause, but there does not appear to be any history of such joint action. Under the scheme, all 'developing countries' (undefined) are supposedly eligible for trade preferences where preference-giving countries exempt imports from developing countries from MFN duties. The GSP was founded on three principles - that it be generalised (covering

7

GATT document L/4903 (BISD 26S/203). The granting of non-reciprocal preferences by developing countries in favour of LDCs is the subject of the Decision of 15th June 1999 (WTO document WT/L/304). 9 See, e.g. WTO document WT/GC/W/331. The Enabling Clause does not provide legal cover for non-reciprocal, country-selective preference schemes such as those by the EC in favour of ACP countries, by the US and Canada in favour of Caribbean countries, and so on. These are covered by waivers from Article I of the GATT which are limited in time and require WTO approval for renewal. 10 UNCTAD (2001). 8

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all products), non-discriminatory (covering all developing countries) and non-reciprocal. However, the unilateral, non-contractual basis on which preference-giving countries have always maintained their GSP schemes has meant that in practice, not all these principles have been fully observed in all the schemes. Considering that GSP has always been regarded as a temporary phenomenon, or as a mechanism to help developing countries 'catch up' with their industrial country counterparts, it is hardly surprising that the notion that GSP should be generalised and non-discriminatory has given rise to interpretative differences. If GSP is to be transient, countries and/or products must inevitably be graduated from preferences over time. And since GSP is unilateral, consistency as to the coverage of schemes can hardly be expected. Product and country exceptions, variations in eligibility rules, different approaches to the determination of preference margins, and an assortment of conditionalities all add to the heterogeneity of the schemes. Preferences can help to increase the exports of a recipient country (by diverting trade from non-preference-receiving countries). Export expansion in beneficiary countries may contribute to development in a broad sense, via increased investment, growth and employment, and diversification of the production base away from exclusive reliance on production of primary goods. Indeed, the relative success of those countries that have been able to diversify into manufactures seems to lend support to this basic premise. Of course, the non-preferential creation of new market access opportunities would hold out the same promise, but with the vital difference that no particular country or group of countries would be accorded such opportunities to the exclusion of others, and such MFN reductions would be more secure than preferences that can be unilaterally withdrawn. This competitive 'edge' provided by preferences, supposedly on a temporary basis, is generally justified as a mechanism to help developing countries catch up with their more developed counterparts. Two obvious disadvantages in using preferences as a means of according a temporary economic advantage are, first, that the preferences may induce beneficiaries to specialise in activities in which they may never become competitive, and, second, that they create vested interests opposed to multilateral trade liberalisation. Inappropriate specialisation may be particularly acute where preferential access entails economic transfers arising from privileged access behind high non-tariff barriers, as has been the case, e.g. with certain agricultural preferences. Not only is the reversal of reliance on such high rent transfers likely to prove extremely painful unless it is carefully managed over an extended period, but also

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the preferences themselves have perpetuated mono-cultural dependence rather than promoting diversification of the production base. One measure of the overall significance of the GSP schemes in the Quad in 1999 may be observed from Table 10.1.11 Imports at GSP rates were $4.16 billion by Canada (2% of total imports in 1999), $38.22 billion by the EC (5%), $39.88 billion by Japan (15%), and $16.7 billion (2%) by the United States. The corresponding imports at the LDC rate were $7.1 million by Canada, $765.6 million by the EC, $194 million by Japan and $2.35 billion by the US. These were all less than 1% of total imports by the respective donors. As noted earlier, the United States accords only zero rate for GSP beneficiaries, so that 'imports from LDCs' in the table are only those for which LDCs have coverage that is not available to other GSP beneficiaries. Otherwise, imports from LDCs on lines for which GSP is generally available are covered in the GSP line. The significance of GSP and other preferences is shown in Table 10.2. In Canada, the EC and Japan, where the GSP is often a non-zero rate below the MFN rate, the simple average GSP (and LDC) rate is lower than the simple average MFN rate, whether on all items or dutiable items, and the import-weighted average on dutiable items is also lower than the importweighted MFN average. In the case of import-weighted averages, however, the GSP rate is higher on all items in these three markets. This apparent inversion takes place because imports from developing countries are often of goods that attract high MFN rates, and the import-weighting procedure (where GSP rates are set at a margin below MFN rates) gives higher average rates. This phenomenon cannot exist in the United States, where the GSP rate is set at zero for qualifying imports. Statistics also demonstrate that relatively few countries have captured the main benefits of GSP.12 Across the major schemes, there is a considerable concentration of benefits among developing countries with relatively large and diversified economies, including substantial manufacturing sectors. There is a strong representation of East Asian countries and India. China is the leading beneficiary in the schemes of Canada, the EC and Japan, but is excluded from the US scheme. Brazil is the major Latin American beneficiary, while South Africa is the leading African beneficiary (North African countries being covered by other preferential schemes in the EC where they might otherwise be larger

11 Tables 10.1 and 10.2 are based on tariff treatment, not on country classifications. For example, if a GSP beneficiary also benefits from participation in a regional trade agreement with lower rates than GSP then its trade is allocated to that category of treatment. 12 WTO document WT/COMTD/W/93 of 5 October 2001.

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Table 10.1. Imports by forms of tariff treatment (US$103), year: 1999 Duty Treatment Canada (world imports excl. NA.: 207,912,378; world imports NA.: 907,321) MFN Canada-United States under the North American Free Trade Agreement (NAFTA) GSP Mexico under the NAFTA Australia Israel under the Canada-Israel Free Trade Agreement (CIFTA) Commonwealth Caribbean countries Chile under the Canada-Chile Free Trade Agreement (CCFTA) New Zealand Least-developed countries (LDCs) Japan (world imports excl. NA.: 266,075,935; world imports NA.: 38,986,158) MFN GSP LDCs

Dutiable Imp.

Total Imp. Excl. N.A.

Total Imp. Share

Free Imp.

80,418,820

39

0

80,418,820

339

0

119,586,220

58

16,596,986

102,989,234

740,672

1,519,807

4,164,668 3,394,771 118,163 88,002

2 2 0 0

3,119,032 1,507,108 14,071 1,261

1,045,635 1,887,663 104,092 86,741

96,597 12,500 40,124 701

173,925 36,028 1,544 53

53,890 49,142

0 0

18 5,364

53,872 43,779

0 12,807

2 288

31,551 7,152

0 0

4,018 0

27,533 7,152

3,487 95

139 0

226,000,351 39,880,847 194,737

85 15 0

51,374,062 21,241,758 0

174,626,288 18,639,089 194,737

6,339,516 32,539,318 107,324

4,449,190 1,384,559 0

N.A. Imp.

Duty Collected

3

(continued)

§

!? •r 2 a

to u>

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Table 10.1. Continued Duty Treatment

Total Imp. Excl. N.A.

Total Imp. Share

Dutiable Imp.

Free Imp.

N.A. Imp.

207,762

United States (world imports excl. NA.: 961,811,854; world imports NA.: 8,912,427) MFN CAN/NAFTA MEX/NAFTA GSP Caribbean Basin Economic Recovery Act/CBI ISR/FTA LDCs Andean Trade Preference Act (ATPA)

744,630,058 118,613,631 70,796,752 16,700,661 3,896,744 2,924,050 2,351,927 1,898,031

77 12 7 2 0 0 0 0

349,450,889 0 3,591,208 0 339,259 0 0 25,485

395,179,169 118,613,631 67,205,543 16,700,661 3,557,486 2,924,050 2,351,927 1,872,546

European Communities (world imports excl. NA.: 698,978,010; world imports NA.: 2,526,980) MFN Other preferences GSP ACP LDCs

516,027,547 134,040,848 38,216,249 9,828,800 765,568

74 19 5 1 0

256,327,256 122,703,344 28,603,236 6,354 137

259,700,291 11,337403 9,613,012 9,822,445 765,430

Source: WTO (2001b).

8,702,753 1,624 288

743,511 967,845 812,190 3,434

Duty Collected

19,086,513 0 120,914 0 255,745 0 0 1,526

18,368,918 7,590,718 1,735,006 497 6

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Table 10.2. Tariff averages by forms of tariff treatment, year 1999

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Duty Treatment

Canada MFN Canada-United States under the North American Free Trade Agreement (NAFTA) GSP Mexico under the NAFTA Australia Israel under the Canada-Israel Free Trade Agreement (CIFTA) Commonwealth Caribbean countries Chile under the Canada-Chile Free Trade Agreement (CCFTA) New Zealand Least-developed countries (LDCs) Japan MFN GSP LDCs United States MFN CAN/NAFTA MEX/NAFTA GSP Caribbean Basin Economic Recovery Act/CBI ISR/FTA LDCs Andean Trade Preference Act (ATPA) European Communities MFN Other preferences GSP ACP LDCs

Simple Tariff Average

Weighted Average

All items

Dutiable items

All items

Dutiable items

4.49 0.00

8.84 0.00

1.27 0.00

9.16 0.00

2.89 1.75 6.06 0.28

5.00 5.40 11.30 5.41

4.18 1.06 1.31 0.06

5.58 2.39 10.98 4.20

0.64 1.67

8.23 7.58

0.00 0.59

10.31 5.37

5.92 0.00

10.41 0.00

0.44 0.00

3.47 0.00

5.28 2.20 0.00

8.33 7.21 0.00

1.97 3.47 0.00

8.66 6.52 0.00

5.59 0.00 0.53 0.00 0.09

7.96 0.00 4.50 0.00 11.10

2.56 0.00 0.17 0.00 1.43

5.46 0.00 3.37 0.00 16.43

0.00 0.00 0.09

0.00 0.00 10.96

0.00 0.00 0.08

0.00 0.00 5.99

7.07 7.98 5.23 0.11 0.04

8.69 8.51 6.88 7.37 7.44

3.56 5.66 4.54 0.01 0.00

7.17 6.19 6.07 7.82 4.42

Source: WTO (2001b).

suppliers than South Africa). There are no LDCs among the top 20 GSP plus LDC suppliers to the Canadian market. Bangladesh is the only LDC in the top 20 of such suppliers to the EC, and Mauritania is the only LDC in the top 20 of such suppliers to Japan. Angola and Democratic Republic of the Congo are among the top 20 suppliers to the US market, with Angola being the third supplier.

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An alternative approach to measuring the benefits of GSP is to model the effects. In the early analyses on the effects of GSP a partial equilibrium approach was generally adopted, reflecting the main analytical approach at the time as well as the emphasis on product detail possible with such an approach. These analyses generally evaluated the effects on trade volumes and welfare of different beneficiary countries of the GSP scheme of particular donor countries. Such studies exhibit a number of methodological similarities, in particular Armington differentiation and flat export supplies.13 However, the level of product aggregation in the different analyses varies quite strongly, and different assumptions are made on the simulated policy change. This explains why the order of magnitude of the GSP impact on trade flows differs considerably among different studies. The estimates of the export increase for beneficiary countries as a whole associated with GSP ranges from 20 to 2%.14 There are two remarkable findings that are common to all studies. First, the trade expansion appears to be very concentrated in a small group of Asian beneficiary countries (Korea, Hong Kong, Taiwan), and the share of African countries is negligible. Second, the trade effects are concentrated in few sectors, mainly textiles and apparel. All partial equilibrium studies disregard long-run phenomena such as sectoral reallocation of resources, terms of trade changes and balance of payments adjustment, which are the domain of general equilibrium models. Moreover, general equilibrium models can account simultaneously for the effects of GSP on donor and beneficiary countries. The findings obtained through computable general equilibrium (CGE) models differ quite substantially compared with those arising from partial

Under the Armington assumption, products within each category, exports from beneficiary countries are considered imperfect substitutes for exports from third countries and domestic production in donor countries. 14 Clague (1972) and Baldwin and Murray (1977) estimate the impact of the GSP scheme of the US, EEC, and Japan. From their analysis, the value of total exports from beneficiary to donor countries (gross trade creation) increases by about 20% as a consequence of the GSP scheme of US and that of the EU (smaller figures are obtained for Japan). Pelzman (1983) and Sapir and Lundberg (1984) focus on the US scheme and work on a different base year and different assumptions on the product coverage and preference margins. They estimate a much smaller gross trade creation, with total exports in value from beneficiary countries rising by about 2% as a result of the US GSP scheme. Karsenty and Laird (1987) consider the scheme of all the industrialised countries and conduct an analysis at a high level of disaggregation. Their findings show that each of the schemes of the US, EEC and Japan cause gross trade creation below 3% while that of Australia produces an increase in beneficiaries' exports around 10%. See, e.g. McPhee (1989) for a survey of partial equilibrium studies of the effects of the GSP.

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equilibrium analysis. The differences in results are primarily due to the additional effects brought into the picture by the reallocation of factors across sectors and by changing terms of trade. As reported in Brown (1988), when the effects of non-preferential trade agreements are evaluated by means of general equilibrium models (gross) trade creation appears always smaller compared with that estimated using partial equilibrium techniques. As for welfare, donor countries generally experience a loss due to worsened terms of trade. While in partial equilibrium analyses terms of trade effects are generally neglected, in CGE analyses terms of trade are emphasised. Some beneficiary countries may end up losing from the preferential treatment also. These negative welfare effects are partly due to the very second best nature of the preferential tariff schemes adopted by most donor countries. Many goods in which beneficiary countries are likely to enjoy a comparative advantage (textiles and clothing, agriculture) are quite often excluded from preferential trade. This leads to a welfarereducing shift in the specialisation pattern of beneficiary countries, since resources are drained in comparatively less efficient sectors. In order to look at the general equilibrium effect of GSP, we have used the GTAP model and the most recent version of the database (GTAP5) with 1997 as the base year. However, we have updated the original tariff database contained in GTAP (which does not consider preferences for developmental purposes) to include GSP and other tariff preferences from the UNCTAD TRAINS database. Table 10.3 provides the basic preference information and regional aggregates used in our experiment. The aggregation chosen considers 9 sectors and 12 world regions, as shown in the table. From the table, it appears that the world regions receiving the most generous preferences in year 2000 are Sub-Saharan Africa and South Asia. As for the sectoral pattern of preferences it is to be noted that agriculture and textile products receive less favourable preferential treatment on average than manufactures. Tables 10.4 and 10.5 report CGE simulation results that evaluate the effects of the GSP scheme of year 2000. In the policy experiment we estimate the value of GSP by simulating the replacement of GSP with MFN rates, but leave untouched any other preferences, under regional trade agreements or selective unilateral schemes such as under the Cotonou Agreement for the EU's former ACP colonies, or the US' CBI. In the tables, the negative results from the elimination of GSP correspond to the estimated gain associated with the schemes. Table 10.4 reports the percentage changes in exports associated with the removal of GSP preferences distinguished by exporting region and sector. Several remarks are in order. First, GSP beneficiary regions all lose in terms of exports from the removal of preferences (or have gained from the

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Table 10.3. Average GSP preference margins (percentage values), geographical pattern, year 200(f Preference Giver

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Japan North America Oceania Transition Countries Western Europe

Preference Receivers Asian China Latin North Rest of South Sub-Saharan Transition Economies Africa NICs America Africa the World Asia 39 36 21 4

39 13 21 4

39 38 21 3

39 23 21 2

34 46 19 4

40 57 22 9

41 51 14 7

26 46 10

42

34

50

38

49

53

56

16

Source: UNCTAD TRAINS database. Preference margins are computed as (MFN rate - GSP rate)/MFN rate. Exports are always assumed to be subject to the most favourable margin available. For example, in the EU, ACP countries get the ACP rate instead of standard GSP rate, but LDCs among the ACP countries - mostly from Africa - get the lower LDC rate. Tariff rates have been aggregated using world trade flows. "Values refer to 1999 and 1997 for, respectively, Russia and Hungary.

existence of GSP). In general, however, the trade effects of GSP are quite limited, between 0.4 and 1.6% of trade in the base period. This is substantially lower than in early assessments of GSP effects, most likely because of preference erosion associated with the MFN tariff cuts in earlier multilateral trade rounds. Second, the trade effects for the Asian countries are greater than those for other regions, which is consistent with previous findings. However, note that the main gains to African countries from preferences come from selective preference schemes such as the EU-ACP Cotonou Agreement, rather than GSP. Third, the effects of GSP in donor regions (Western Europe, North America, Oceania, Japan, Transition Economies) are minor - they have suffered negligibly in third country markets from competition from GSP beneficiaries. In essence, GSP beneficiaries' products are differentiated from and do not compete directly with exports from GSP donors on third country markets. Finally, as found in early partial equilibrium analyses, the trade effects appear to be concentrated in quite few sectors, especially in textiles and apparel and processed agriculture. This occurs in spite of the fact that these sectors do not receive the most generous preferences, and is explained by the specialisation of beneficiary countries in sensitive sectors that have high MFN protection and have relatively high demand elasticities, so that even a small preference margin is quite significant. Table 10.5 reports the effects of the GSP on the welfare of different regions. The indicator for welfare accounts for variations in real income associated with both changes in nominal income and in real prices. At a

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Table 10.4. Export values (percentage changes) Exporting Regions

Sectors Extractive Goods

Transport Equipments

Machines

-0.05 -0.13 1.01 -0.60 -0.70 -0.15 -0.06 -0.68 -0.10 -0.13 -1.47 0.145

-0.89 1.09 -1.29 -0.20 0.03 -3.37 1.78 0.50 -0.71 1.11 -0.67 -1.83

-1.03 -0.31 -1.46 0.13 0.06 -1.51 -1.00 0.17 -3.74 0.62 -0.40 -2.88

Asian NICs China South Asia Western Europe North America Transition Economies Sub-Saharan Africa Oceania N. Africa and M. East Latin America Japan RoW

Metal

-0.53 -0.53 -2.12 -0.36 -0.11 0.07 2.27 -0.31 -0.62 -0.19 -1.13 -0.24

Other Manufactures

Primary Agriculture

Processed Agriculture

Textiles and Apparel

Services

-1.2 -1.0 -1.98 0.23 0.05 -1.31 -1.70 0.01 -1.51 -1.83 -0.79 -2.80

0.33 0.21 -0.79 0.01 -0.62 0.25 -1.43 -0.49 -0.34 -0.56 -1.37 -0.48

-1.57 -1.45 -2.44 0.62 0.06 -1.54 -9.40 -0.02 -2.18 -2.51 -1.33 -6.90

-2.07 -2.67 -3.50 1.40 0.14 0.68 -5.96 1.13 -2.99 -0.44 -4.34 -7.02

1.02 0.91 2.28 -0.67 -0.49 0.70 1.77 -0.09 1.26 0.49 -0.63 1.58

Total

3 -0.70 -0.8 -1.58 0.001 -0.12 -0.54 -0.75 -0.16 -0.48 -0.39 -0.64 -1.46

l ft.

1? •r a

«•»

Source: GTAP simulations.

K>

Ui NO

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Table 10.5. Welfare effects (US$ millions)

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Allocation Component Asian NICs China South Asia Western Europe North America Transition Economies Sub-Saharan Africa Oceania North Africa and Middle East Latin America Japan RoW Total

-405 -360 -327 -722 85 -317 -173 1 -474 -226 -246 -107 -3275

Terms of Trade Component

Total

Change(%)

-1950 -1613 -594 4634 1866 -941 -512 -22 -1315 -789 1466 -256 -27

-2317 -1855 -964 3719 2252 -1297 -701 -11 -1816 -1043 1189 -446 -3293

-0.23 -0.15 -0.19 0.05 0.02 -0.17 -0.22 -0.003 -0.23 -0.05 0.033 -0.17

Source: GTAP simulations.

worldwide level, GSP is associated with minor welfare effects (some $3 billion). The regions, which have the greatest welfare effects in absolute terms, are the Asian NICs and China (about $2 million each), while those with the least benefits in percentage terms are Africa and Asian NICs (around 0.2% or real income). Latin America has the lowest GSP benefits in terms of real income. Donor regions generally gain from removing GSP preferences, but these gains generate percentage changes in real income that are almost negligible. Overall, the effects of GSP on countries' exports and real income appear to be quite limited. The change in export and real income associated with the GSP is almost negligible for donors and generally small for beneficiaries. Even so, GSP preferences seem to produce a non-negligible effect on the sectoral pattern of exports and may have contributed to shifting resources away from agriculture and textiles in several beneficiary countries. Of course, improvements could be made to the schemes, as has been recognised by the donors themselves. Greater simplicity and stability of coverage, more transparent competitive needs exclusions and so on are factors. For example, it is recognised that the simplicity and stability of the Japanese scheme have contributed to relatively high utilisation. In Japan too, imports under GSP are a much higher share of total imports than in other donors, but this may also reflect the fact that Japan has relatively few reciprocal preference schemes. Another suggestion sometimes made is to extend the coverage of GSP in the agriculture sector, where many fewer items are covered. To some extent

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this goes against the philosophy of using GSP to promote industrialisation, and the fact that countries that have industrialised have done better in lifting their trade performance seems to justify the selective approach. However, there have now been studies that suggest that the anti-agriculture bias of ISI policies has also been harmful to developing countries, and it may well be that the time is ripe to expand GSP to encourage further processing of food and other raw materials by developing countries. Nevertheless, while the arrangements could doubtless be improved in various ways from the point of view of the beneficiaries, it would be difficult to point to significant obstacles to access inherent in the arrangements themselves. This suggests that the limited success of trade preferences in increasing the trade shares of beneficiary countries, and in fostering growth and economic diversification, must be explained primarily in terms of other constraints to development in the beneficiary countries - supply-side constraints - which are scarcely addressed in the WTO system. On the other hand, the concentration of benefits suggests a need to target preferences better to countries that require them as a condition for their integration into the world economy and development. We come to this question of possible tiering of benefits later. 10.3.1.2. Non-preferential access A number of studies have identified two main market access issues of particular concern to developing countries (see, e.g. Laird, 2000). These relate to tariff escalation and tariff peaks in both industrial and agricultural sectors. In addition to this, developing countries have expressed concerns over the benefits they are receiving from the ATC and the Agreement on Agriculture (AoA) (Laird, 2000). The pattern of liberalisation of textiles and clothing products varies somewhat among the developed countries. Norway and Canada have accelerated the implementation of their commitments under the ATC, whereas the EU and the US have been undertaking liberalisation in accordance with the Agreement. Overall, products integrated into the WTO thus far have been concentrated in the relatively low value-added range and the phase-out process has been back loaded in the sense that almost half of the quantitative restrictions - those shielding the most sensitive items - will be removed only at the end of the transition period. Developing country exporters are concerned that the governments of the industrialised countries will have difficulty overcoming industry objections to liberalisation, although importers have reiterated their commitment to the ATC. However, apart from back loading, tariff increases (within bound rates), the restrictive use of rules of origin, special safeguards and

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anti-dumping measures by importers have also led to charges of double jeopardy by some analysts. Some developing country exporters also fear that back-loaded liberalisation will also distort the distribution of benefits among developing countries. They are concerned that they will lose competitiveness following the rapid phase-out of the quotas, and may hence lose market shares in the process. The MFA has created entrenched export interests protected from open competition, particularly from newer and possibly more efficient producers. Consequently, the dismantling of the MFA may entail significant adjustment costs for some developing countries that presently are major exporters. Furthermore, some countries feel that further distortions have been introduced by the preferential tariff access accorded to some developing countries to selected developed markets as through the Europe Agreements. As a result, these countries enjoy better market access than other competitors from developing countries, some of whom may be lower-cost exporters. Clearly, continued application of relatively high tariff barriers will remain a cause of concern, even after all MFA-related quotas have been abolished. With respect to the AoA, concerns have also been expressed, particularly by developing countries, regarding the weakness of several specific features, which have effectively limited liberalisation. •

•

•

Among the market access commitments, the provisions for 'market access opportunities' have led to the introduction of tariff quotas that in some cases have opened up markets formerly closed or restricted. However, there have been concerns that under-filled quotas combined with high out-of-quota tariffs have resulted in trade distortions. Even though there are several factors that can lead to under-utilisation of tariff quotas, the method by which tariff quotas are administered can have an important impact on the rate of fill. The domestic support provisions of the AoA are seen so far to have had only modest quantitative effects on agricultural trade. This is partly due to the aggregate (i.e. non-product-specific) nature of the reduction commitments and the exclusion of some support measures, i.e. 'blue box' (payments under production-limiting programmes) and 'green box' (domestic support policies that have 'little or no' trade impact) payments, that in some cases may not be production and trade neutral. Notwithstanding the achievements of the AoA provisions on export subsidies, there remain some concerns regarding implementation in this area. In particular, the use of other policies that may have subsidy elements, including export credits, the activities of state trading

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entities as well as export taxes and restraints on exports, has attracted increasing attention. The elimination of past production and trade distortions may also involve some costs and risks for NFIDCs that have so far been importing a large share of their food consumption at the generally depressed world market prices and through several concessional arrangements. These countries may now find themselves facing higher food import bills to the extent that some of these concessional arrangements are being eliminated or because of a rise in the level of world agricultural prices. Downloaded by University of Lethbridge At 09:05 31 May 2017 (PT)

10.3.1.3. Services Article IV of GATS foresees the participation of developing countries in the service liberalisation to be gradual and to proceed along the developmental requirements of each member. This is to be achieved via the negotiation of specific commitments that would strengthen their domestic service capacity, efficiency and competitiveness through access to technology on commercial basis, the improvement of their access to distribution channels and information networks, and the liberalisation of market access in sectors and modes of supply of export interest to them. Developing countries have expressed concerns over the lack of specific mechanism to operationalise the provisions in Article IV of GATS for liberalisation of market access in sectors and modes of supply of interest to them, and the need to move ahead with implementation of Article 66.2 of the TRIPS Agreement that deals with incentives for the transfer of technology to LDCs. As stated earlier, some developing countries have also argued that IP protection under the TRIPs Agreement is largely oriented towards areas of interest to developed countries, leaving aside areas that particularly interest them, like indigenous knowledge or geographical indications for traditional handicrafts. 10.3.2. Provisions to safeguard the interests of developing countries A number of WTO Agreements have provisions that call on members to take into account the interest of developing countries. For example, the TBT Agreement provides that in the preparation and application of technical regulations, standards and conformity assessment procedures, WTO Members should aim to take into account the special development, financial and trade needs of developing countries. Similar provisions are also included in the Sanitary and Phytosanitary (SPS) Agreement. The Anti-Dumping Agreement (ADA) also stipulates that constructive remedies should be explored before applying anti-dumping duties in

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cases where they affect the essential interests of developing countries. The Agreement on Subsidies and Countervailing Measures also stipulates the termination of countervailing duty investigations against a product originating in a developing country if the level of subsidisation or the share of imports is less than a prescribed level. A similar stipulation is also included in the Agreement on Safeguards for the non-application of safeguard measures on imports from a developing country if the import share falls below a prescribed level. A number of developing countries have expressed the view that many such provisions have been largely ineffective. For example, where it concerns the TBT and SPS Agreements, some have complained that developed countries have not adequately taken into account their special needs in preparing and applying SPS measures, technical regulations, standards and conformity assessment procedures. They have also expressed concerns over a lack of initiatives to facilitate their participation in standard setting organisations. In addition, concerning the Anti-Dumping Agreement, some developing countries argue that developed countries applying anti-dumping measures have paid inadequate attention to the special situation of developing countries and have not adequately explored possibilities for constructive remedies. Developing countries feel that they should be accorded more flexible procedures, e.g. by being allowed higher de minimis dumping margins and import share thresholds in anti-dumping proceedings. Moreover, these countries call for a 'grace period' during the initiation of proceedings, as well as special considerations when setting the investigation period. 10.3.3. Flexibility of commitments Of the special S&D provisions, 43 impart more flexibility to developing countries in the implementation of certain rules and commitments. For example, the AoA provides a longer timeframe and lower reductions in tariffs and subsidies for developing country members; they are also not required to make commitments in respect of subsidies for marketing costs and internal transport and freight charges on export shipments during the implementation period. For non-agricultural subsidies, developing countries with per capita income less than $1000 (Annex VII countries) have been exempted from the prohibition on export subsidies as long as these do not disrupt other countries' markets. Once a developing country graduates (i.e. its per capita income exceeds $1000), that country is given a maximum of 8 years to phase out export subsidies (there is, however, some provision for extension).

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The Safeguard Agreement allows developing countries to maintain safeguard measures for a period of 10 years, instead of 8 and they may reimpose safeguard measures after half the time of a previous application in case the minimum 2-year period of non-application has elapsed. The GATS also allows developing country members to open fewer sectors and liberalise fewer types of transactions while progressively extending market access in line with their level of development. Developing countries were also given the flexibility to bind their tariffs at ceiling levels that are more often than not significantly higher than autonomously applied tariffs. In most cases, the lower applied tariffs have been introduced in the context of adjustment programmes outside the WTO reciprocal bargaining process. Thus, developing countries were given bargaining chips that they can use in future negotiations. This outcome also gave rise to the concept of 'Credit for Concessions Given'. GATS Article XIX offers in addition "appropriate flexibility for individual developing countries for opening fewer sectors, liberalising fewer types of transactions, progressively extending market access in line with their developmental situation and, when making access to their markets available to foreign service suppliers, attaching to it conditions aimed at achieving the objectives referred to in Article IV". As anticipated above, no specific concerns under this heading were raised by developing countries. 10.3.4. Transitional periods Longer time periods to facilitate implementation are provided for in all WTO Agreements, save in the cases of the Agreements on the Implementation of Article VI (anti-dumping) of GATT1994 and on Preshipment Inspection. For example, the TRIPS Agreement grants developing countries a 5-year transition period (except for the national treatment and MFN commitments), while least-developed economies are afforded up to 11 years to follow suit, with the possibility of further extensions. Some developing countries have expressed the view that the transitional periods neither provide adequate time to deal with specific capacity constraints that many of them face, nor do they take into account their particular development needs. Specific areas in which extensions have been referred to include those related to non-agricultural export subsidies, TRIMS, TRIPS and the Customs Valuation Agreement. 10.3.5. Technical assistance The provision of technical assistance to developing countries is often seen as part and parcel of S&D under the WTO Agreements. It aims at assisting

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developing country governments in their efforts to build institutional capacity needed to implement the Agreements and participate more fully in the multilateral trading system. This seems particularly important for implementation of SPS, TBT, Customs Valuation, GATS and TRIPS. However, technical assistance provisions are not an automatic right, and the limited budget of the WTO on technical assistance sets severe constraints on what is available to developing countries. It should be noted that, at the completion of the Uruguay Round, there was no attempt to assess what might be required to implement the various agreement, how long it would take or how much it would cost. It should also be noted that WTO technical assistance is linked exclusively to the implementation of WTO obligations, and does not address the issue of supply capacity which some developing countries consider to be the more acute problem with a higher priority. There is also a view among some developing countries that technical assistance is not a form of S&D treatment. Under this view S&D treatment is seen as addressing chronic differences between developed and developing countries, whereas technical assistance is seen as intended to lift developing countries to the same level of rights and obligations as other WTO Members. 10.3.6. Least-developed countries Following the failure of the WTO Seattle meeting, a number of developed and developing country members picked up the elements of the Seattle draft text and announced a package of measures for the LDCs. These include "the tariff-free and quota-free treatment consistent with domestic requirements and international agreements, under their preferential schemes for essentially all imports products originating in least-developed countries".15 In practice, LDCs already had relatively free access for many of their exports, and in some instances the new measures remain limited in areas such as agriculture and textiles and clothing, where the LDCs already have some capacity, but which are sensitive in the developed country markets. However, the European Union's Everything but Arms Initiative provides for the eventual duty-free and quota-free treatment even of sensitive products such as rice, bananas and sugar, and the US AGOA for selected African countries' moves in the same direction. There is also cooperation among the IMF, UNDP, UNCTAD, the World Bank, the WTO

15 Director-General's Report on Consultations on Measures in Favour of Least-Developed Countries to the WTO General Council on 3rd May 2000.

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and the WTO/UNCTAD International Trade Centre in the context of the Integrated Framework of Trade-Related Technical Assistance for the LDCs, intended to help LDCs develop the necessary analytical and policy framework for mainstreaming trade into national development strategies; after a bad start, this initiative now seems to be moving forward.

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10.4. Reflections on special and differential treatment Much of the previous section reflects the developing countries' dissatisfaction with the actual operation of a large number of S&D provisions. They consider them as inadequate instruments to help them integrate more fully into the world trade. However, any discussion of the actual or potential contribution of S&D to integration efforts and, hence, economic development must necessarily reflect the range of diversity among developing countries, from Afghanistan with an annual per capita income of some $200 to Singapore with a per capita income of $26,600 (1998), both in principle having the same right of access to S&D provisions. At the most basic level, no single system can pretend to address the interests and concerns of countries with such a wide difference in economic performance, needs and capacities. Two alternative approaches can be distinguished: one would seek to encourage the more advanced developing countries to abandon the group on an autonomous basis. Indeed, in the Uruguay Round a number of developing countries foreswore some of their rights to extended transition periods. The other would extend the practice of targeting more benefits to a select group of developing countries, in effect tailoring S&D provisions more to specific needs and circumstances. However, the inevitable consequence of the latter approach is that the blanket special provisions under S&D would eventually reduce the privileges of the excluded countries, and there would be pressure to add this or that country to the list of those that would retain S&D or be granted even more S&D treatment. To some extent this would amount to recognition within the WTO of actions by individual donor countries in the area of aid and bilateral technical assistance programmes. At this stage, we focus on eight possible areas for consideration in the context of a review of S&D provisions targeted to the benefit of LDCs, although some proposals would apply equally to other developing countries. The intention is to stimulate the debate by sharing ideas that are by no means comprehensive or prescriptive of future policy orientation. Starting with the GSP, mention has already been made of the recent proposals by developed countries to implement both tariff-free and quotafree treatment (consistent with domestic requirements and international agreements), under their preferential schemes for essentially all products

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originating in the LDCs. New Zealand has already granted duty-free access to its market for all products from LDCs with effect from 1st July 2001. Other countries, including Chile, the Czech Republic, Hungary, Iceland, Korea, Norway, Slovenia and Switzerland have also indicated their intentions to take measures to improve the access of LDCs to their markets. Although LDCs already had few restrictions on their exports, particularly in the EU, these schemes will constitute a useful improvement in their market access conditions (UNCTAD and Commonwealth Secretariat, 2001). Nevertheless, other policies need to be implemented, particularly on the supply side, to make the initiative more effective. Care should be exercised on the institutional side so that the individual country schemes add up to a homogeneous whole. First, preference-granting countries could consider simplifying defined aspects of their preferential schemes, most notably their regulatory contents. This may include the substantive contents of rules of origin, technical specifications and standards (conformity assessment, including registration, inspection, laboratory accreditation, and quality system registration programmes; SPS measures, packaging and labelling requirements, etc.). Where regulations concern rules of origin, consideration could be given to go beyond simplification to include harmonisation and the right to cumulate benefits across individual schemes. In matters relating to technical specifications and standards, perhaps an 'early warning' mechanism could be instituted to inform beneficiary countries of any contemplated changes in regulations.16 Such a mechanism could also be used to consult beneficiary countries on the 'least-disruptive' and 'leastcostly' method of adjusting to new standards, on how best to minimise undesirable side-effects, and, where deemed necessary, to establish and channel targeted technical assistance to help countries adapt. Second, the 'early warning' mechanism could also be entrusted with handling notification requirements of preferential schemes to the WTO, and with monitoring developments in both beneficiary and preference-giving

16

In the WTO context, both the TBT Agreement (Article 2) and the SPS Agreement (Annex B) require that members should be given adequate time to comment in writing about any intended new or modified regulatory intervention, where such an intervention is not substantially based upon international norms or practice. Moreover, there is an obligation to consult upon request in relation to the written comments, and to take the comments and the results of any discussion into account when formulating the final content of the regulation. While the GATS does not contain comparable provisions, WTO Members have committed themselves to develop any necessary disciplines in the regulatory field to replace the very general provisions that currently exist in Article VI:4.

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countries. This may include tracking gains from the schemes, highlighting implementation issues and identifying potential problems that may arise in both the preference-granting and beneficiary countries. Third, to add security to the schemes and help attract investment, consideration should be given to 'locking in* or binding preferential duties. On the other hand, since developing countries often produce goods which are often differentiated from those of developed exporters and, as we have seen, face higher MFN duties, then consideration should be given to deep reductions in MFN bound tariffs on products of export interest to the developing countries. Fourth, new efforts could be deployed to revitalise inter-developing countries' trade preferences (the Generalised System of Trade Preferences (GSTP)). Benefits to LDCs from such schemes could turn out to be larger than those they receive under the GSP. This is because in the post-Uruguay Round trading environment, the majority of developing countries have bound their duties and at high levels. Thus, even if the GSTP were to grant LDC's exports lower margins of preferences than the GSP, the former can enhance LDC's own trading opportunities much more than might a larger preferential margin under GSP applied to low tariffs in industrialised markets. Put simply, a smaller proportional reduction in a high tariff can stimulate exports more than a larger proportional reduction accorded to a low tariff. In a sense, developing countries themselves have increasingly begun to follow such an approach through a rapidly expanding network of regional trade agreements under the relatively easy conditions of the Enabling Clause. Fifth, markets in many LDCs (or other developing countries) do not function properly on account of structural impediments of one kind or another, usually attributable to the behaviour of economic agents in the market concerned, or on account of market failure. The appropriate policy response depends to a degree upon the source of the market distortion. In some cases, it may be government policies and regulations that giveriseto the problem, in which case the solution may well be to change those policies. In other cases, the source of the problem might be the actions of private firms or individuals colluding to set prices, allocate markets, rig bids or engage in other anti-competitive 'hard core' cartel behaviour. Alternatively, it might be that a privatefirmis abusing its market power or perhaps its own dominant position in a particular market. Such cases may call for an appropriate horizontal competition law or policy to be applied to prohibit or eliminate the anti-competitive private practices in question. However, most of the developing countries and the majority of LDCs do not currently have in place effective domestic competition laws and policies or active competition law enforcement agencies. Accordingly, an

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urgent need exists for capacity building and technical assistance to improve the quality of competition laws and policy enforcement and advocacy in developing countries. Such technical assistance and capacity building may be a necessary prerequisite to international co-operation with competition law enforcers from developed countries to help root out some private anti-competitive practices arising outside of a particular developing country, but which substantially lessen or prevent competition in that country. Some developed and developing countries have proposed multilateral competition disciplines to address these problems. Whatever the ultimate merits of such proposals, at this stage, it should be noted that national, regional and plurilateral competition disciplines are not necessarily inconsistent with the development of multilateral rules. Multilateral rules could serve as the takeoff point for developing national, regional or multilateral rules, and similarly multilateral rules might be facilitated by enhanced national competition laws and bilateral cooperation in the enforcement of competition laws. Sixth, not all LDCs are WTO Members. Some are currently negotiating their accession to the WTO.17 The faster the integration of these countries into the WTO system, the earlier they can start on their journey towards fuller integration into the world economy. There is a widely recognised need to streamline accession procedures for these countries, in conjunction with perhaps the provision of technical assistance to help them participate and respond more effectively to the requirements of the accession process. Existing WTO Members might show greater tolerance to these countries in their demands for policy changes and in according the LDCs adequate transition periods. They would also benefit from a faster streaming of assistance to help them adjust their trade policies, e.g. in the context of bilateral aid or the inter-agency Integrated Framework for Trade-related Technical Assistance to LDCs (in this regard, see also the next point). Seventh, the GATT/WTO is also about helping countries to adopt good policies and practices and to rid their economies of bad ones. These are in essence governance issues that Stiglitz and Rodrik consider may well be more important than full liberalisation. An option might be to introduce incentives into WTO agreements that would encourage developing countries to examine ways to exploit fully the opportunities for reforms that the agreements generate, and this should be supported by the Bretton Woods institutions without further conditionalities. For example,

17

Seven LDCs are currently in the process of negotiating their accession to the WTO. They are: Cambodia, Cape Verde, Laos, Nepal, Samoa, Sudan and Vanuatu. Furthermore, Bhutan, Ethiopia and Yemen are WTO Observers.

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the Customs Valuation Agreement provides remedies for valuation practices and is intended to improve the predictability of the customs process and limit the possibility of using customs valuation as a non-tariff barrier. However, in many of the poorer developing countries, valuation for customs purposes is but one part of the procedures for customs administration that need and require improvement. Thus, technical assistance efforts to help countries implement their commitments in this and other areas could be stretched to cover the whole range of needed reforms: this is one sure way to ensure that the benefits from the agreements are maximised. Technical assistance programmes could be underpinned by a working group in the WTO that would examine issues related to customs modernisation and reform, and promote efforts to develop and implement initiatives that will simplify trade procedures and practices.18 The working group could also seek to build a database that spells out customs requirements of WTO Members, ensuring their compatibility with WTO disciplines and enhancing transparency. The working group could then be entrusted with developing an operational technical assistance programme targeted at countries that need support. In any future negotiations, there should be an attempt to cost and program implementation, and the necessary technical assistance should be a right. Where it concerns agreements that are intended to eliminate bad policies, care should be taken not to sanctify exemptions from disciplines that in fact make for perfect economic sense. Perhaps the most relevant example in this context is found in the Agreement on Subsidies and Countervailing Measures where it is stated that "subsidies may play an important role in the economic development programmes of developing country members" (Article XXVII: 1). In fact, the LDCs are practically given a free hand to subsidise exports as long as these do not disrupt other countries' markets. In addition to the obvious observations that subsidies are distortionary policies and that poor countries could ill-afford them, their governments have not been given any cover from domestic groups seeking subsidies.

The WTO agreements contain many elements related to the simplification of trade procedures. These are included in Articles V, VII, VIII, X of GATT 1947 as well as the Agreements on Customs Valuation, Import Licensing, Preshipment Inspection, Rules of Origin, Technical Barriers to Trade, and the Agreement on the Application of SPS Measures. The WTO Singapore Ministerial Conference in 1996 gave the WTO a mandate to take a more comprehensive look at these issues.

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Eighth, developing countries have claimed that provisions for the recognition and safeguard of their interests have been largely ineffective. At the moment, much of the WTO provisions dealing with S&D treatment could be said to be unenforceable, as they are expressed in hortatory language. Efforts could be undertaken to bring the best endeavour provisions closer to the contractual nature of the WTO framework of Agreements. 10.5. Calibrating S&D treatment

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10.5.1. Options for tiering or calibrating S&D treatment If S&D treatment is to be better targeted then this may entail the tiering or calibration of benefits throughout the WTO system along lines which started to be more clearly drawn out in the Uruguay Round and even earlier than the GSP and linked to the level of economic development achieved by a beneficiary country. Under the GSP, three principal tools have already been used for this purpose for some time: • •

•

the extension of deeper benefits to those beneficiaries that are deemed to be the LDCs; the graduation (i.e. removal from GSP status) of specific products imported from beneficiaries that are deemed to be sufficiently competitive in the production of those items; the graduation of the more advanced beneficiary countries from the programme altogether.

The original GSP proposal suggested that the programme as a whole lasts for just 10 years, and also implied that the benefits might be reduced for the more advanced beneficiary countries. It did not directly address the question of whether individual countries might be graduated from the programme altogether, nor did the Enabling Clause clarify this matter. Though a preferential approach has become deeply ingrained and the principle of non-reciprocal concessions was codified in the Enabling Clause, the text of the Enabling Clause itself contains a provision to the effect that such preferential treatment should not be indefinite and should evolve through time, as developing countries state the expectation that: their capacity to make contributions or negotiated concessions or take other mutually agreed action under the provisions and procedures of the General Agreement would improve with the progressive development of their economies and improvement in their trade situation and they would accordingly expect to participate more fully in the framework of rights and obligations under the General Agreement.

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This formulation, which has been described as 'quite vague and ambiguous',19 can be read in two different ways. In a narrow interpretation, the provision suggests that countries should be expected to engage more fully in the exchange of concessions as their economic development advances. A broader interpretation would hold that this clause constitutes the developing countries' acceptance of graduation as a basic principle. Whatever may have been the original intent of the sponsor and beneficiary countries, it is quite apparent that the graduation of countries has become a key element of the programme. All major schemes reviewed provide for the graduation of countries and/or products. Countries often are graduated in stages, such that the more advanced beneficiaries see many of their products graduated before they are removed from the programme altogether. 10.5.2. Experience in Australia, the European Union, Japan and the United States Graduation is most apparent in the case of the Australian programme. As a general rule, Australia has graduated (or is in the process of graduating) all countries other than the LDCs. The first step in this direction came in 1991, when Australia declared that the tariffs applied to Singapore, Chinese Taipei, Hong Kong-China, and the Republic of Korea were fixed to the 1st July 1992 rate until the general Australian tariff was reduced to that level. The margin of preferences extended to imports from these countries thus narrowed as MFN tariffs declined. The next step came in 1994, when the White Paper on Employment and Growth removed all but the LDCs from the beneficiary list of the ASTP. The 1994 White Paper froze the 1st July 1994 developing country rates until the general rate was reduced to the same level. This did not lead to any increases in developing country tariffs; it instead had the effect of gradually diminishing the margins of preference. The following phase-out rules were applied. •

•

l9

Where general rates already reached 5% or less (i.e. where developing country tariffs are zero) the existing developing country preferences are maintained. Where developing country rates have already fallen below 5% but have not reached zero, they are frozen at those levels.

Yusuf(1980).

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•

The 5% point margin will continue to apply for the present where no tariff phasing is currently taking place (sugar, footwear parts, soda ash and passenger motor vehicle replacement parts). The developing country preference will be phased out for these products if general tariff preferences are undertaken some time in the future. Developing countries will thus continue to receive tariff preferences until the MFN rates are reduced to the former GSP level.

•

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The EU used to employ a system in which GSP privileges were quantitatively limited through 'fixed duty-free amounts' and 'fixed reduced-duty amounts'. These restrictions were not a graduation mechanism per se, but did limit the amount of available benefits. The EU replaced this approach in 1994 with a 'tariff modulation' approach that is based on reduced rates of duty that are classified according to the product's level of sensitivity. The EU also modulates the treatment extended to products and countries by providing objective standards for graduation. Product and country graduations from the EU system are based on the combination of a specified level of GNP per capita and the 'development index'.20 That index is designed to determine a beneficiary country's development level vis-a-vis the EU. The variables are income, population, and manufactured exports of both the beneficiary country and the EU. An index score of 0 means that the development levels of the beneficiary country and the EU are equal. Income and population statistics are obtained from the World Bank while data on manufactured exports are from UNCTAD figures. The EU removed Singapore, South Korea, and Hong Kong-China from the programme in 1998, when countries that exceeded $8210 GNP per capita (according to World Bank figures) were to be graduated if they also received a development index score greater than — 1. The graduation of products from the European Union's GSP was wholly revamped in 1994, based on sector-by-sector evaluation. According to Article 4 of the current GSP Regulation, countries "whose exports to the Community of products covered by this scheme in a given sector exceeded 25% of all beneficiary countries' exports to the Community in that sector in

20

The EU development index is defined as {\og[(.Yi/POP1)/(Ylie/POPue)] + log[Xi/Xue]}/2 where Y\ is the beneficiary country's income; Kue the EU's income; POPj the beneficiary country's population; POPuc the population of the European Union; Xt the value of the beneficiary country's manufactured exports; Xue the value of the EU's manufactured exports.

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the statistical reference year of the previous scheme" will be graduated. However, Article 4 part 2 states that

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countries whose exports to the Community of products covered by the scheme in a given sector did not exceed 2% of all beneficiary countries' exports to the Community in that sector in the statistical reference year of the previous scheme shall continue to be exempt from the graduation mechanism.

The country's sector specialisation is combined with the development index to determine a country's eligibility for graduation in a given sector. Beneficiary countries of Japan's GSP system can graduate in three circumstances. Countries will graduate if they are classified as a 'highincome economy' in the World Bank Atlas for three consecutive years, export more than 25% of total exports to Japan, or export more than ¥1 billion in products to Japan. A country will also be graduated if it is not listed in the Atlas but is recognised to have the same level of GNP per capita with other 'high-income economies'. Currently, 18 countries are excluded from the GSP, as noted in Appendix l.21 The Japanese GSP programme maintains a system of ceilings on a number of industrial products. Imports that exceed the product ceiling are subject to the general MFN rate. Ceilings play an important role in the Japanese graduation system as well. If preferential imports from a single country exceed one-fourth of the total value/quantity of the ceiling for that import, preferential treatment is suspended. These quantity regulations do not always apply. Thirty-five product groups' ceilings and 66 product groups' maximum country amounts qualify for 'flexible administration'. Products that pose no threat or injury to domestic production are allowed to continue under preferential treatment beyond the product ceilings and maximum country amounts. In the US, the graduation of products is governed by the competitiveneed limitations (CNLs). The CNLs are intended to prevent the extension of preferential treatment to countries that are already competitive in the production of an item. The CNLs set a ceiling on GSP benefits for each product and country, and are triggered by the trade data that the GSP Subcommittee reviews on an annual basis. With certain exceptions and qualifications, a country will automatically lose its GSP eligibility for a given product the year after the CNLs are exceeded. Since 1985 there have been two CNLs in place: the original, 'upper' competitive need limit and a new, 'lower' limit. The 'upper' CNL remains the most common, and applies to the great majority of products and countries. It is triggered on a 21

UNCTAD (2000).

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product if during any calendar year US imports from a country account for half or more of the value of total US imports of that product or exceed a certain dollar value that is adjusted annually.22 The figure was originally set at $25 million in 1975, and rose to $95 million by 2000. It will go up by an additional $5 million in each subsequent year (i.e. it will be $100 million in 2001, $105 million in 2002, etc.). Products that have been found by the GSP Subcommittee to be 'sufficiently competitive' when imported from a specified beneficiary are subject to the 'lower' CNL. For these products the trigger is 25% or a dollar value set at approximately 40% of the 'upper' competitive need level. The US programme also allows for temporary or permanent waivers of the CNLs for specific products, and the CNLs are automatically waived for LDCs. The US law also provides that a beneficiary country can be graduated completely from the programme if "the President determines that a beneficiary developing country has become a 'high income' country, as defined by the official statistics of the International Bank for Reconstruction and Development". This provision has been used to graduate several Asian newly industrialised economies, among others. In addition to graduating Hong Kong-China, Korea, Singapore, and Chinese Taipei in 1989, as well as Malaysia in 1997, the United States removed Mexico from the programme when the North American Free Trade Agreement entered into effect in 1994 (Appendix 1 lists the countries that have been graduated from the programme, or have otherwise seen their preferences suspended or terminated). 10.5.3. Subjective adjustment of privileges Not all removals of countries and products have been made solely on the basis of objective considerations of economic development and competitiveness. Donors can use these privileges to exert influence on the beneficiary countries. For at least two of the schemes reviewed above, the donors have used either positive inducements (i.e. expanded benefits) or negative sanctions (i.e. the removal of countries or products) as a means of inducing changes in the policies of beneficiary countries. For example, the EU provides a number of means to encourage compliance with internationally recognised environmental, labour, and 22

Certain products can obtain a waiver under section 504(d). The percentage provision is waived for items that were not produced in the United States on 3rd January 1985, as provided for in Section 504(d) of the GSP law. The list can be modified through petitions submitted in an annual review. For those products on this list, a 504(d) waiver will automatically be granted when required each year.

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drug policies. Section 4, Article 7 of the Regulation applying the 19992001 GSP programme outlines the "special arrangements supporting measures to combat drugs". This incentive is meant to reward Central and South American countries for their domestic efforts to combat drugs. Customs duties are suspended entirely for a wide range of industrial products. Notable exceptions are parts and accessories of arms and ammunitions and various sensitive agricultural products. Countries benefiting from this special arrangement are the Andean Community23 and Central American Common Market24 members. The special incentives linked to the protection of labour rights originally referred to ILO Conventions 87,98 and 138. To bring this into line with the concept of 'core labour rights', beneficiaries are also being asked to comply with ILO Conventions 29, 100, 105, 111 and 182. On the other hand, serious and systematic violation of those standards is proposed as a reason for temporary withdrawal of GSP benefits. Some modification of the provisions related to environmental protection is being made to take account of the fact that some national certification schemes have acquired a degree of international recognition. Temporary withdrawal of benefits is being contemplated on the basis of significant detrimental effects on the environment arising from the production of certain products. Further modifications are envisaged in the scheme for the next decade. In the US, the 'designation criteria' that the President employs in deciding whether any specific country would be granted benefits also provide the means by which a country can be removed. A country's benefits can be reduced, suspended, or terminated if it is found not to comply with these criteria. The US policy on this matter took a new turn with the Trade and Tariff Act of 1984, which - in addition to re-authorising the GSP made three important changes in the programme.25 First, the designation criteria for the GSP were expanded to cover additional items (e.g. labour rights). Second, the law provided for a 'general review' that could lead to increases or reductions in countries' benefits. Third, the law allowed the Office of the US Trade Representative (USTR) to offer countries more secure benefits by waiving the limits on GSP benefits. The USTR first used these provisions in a general review of the GSP in 1985-1987, and has continued to use them in subsequent annual reviews. The workers' rights criterion has been the single most common issue cited in the petitions filed with the GSP Subcommittee. Of the 224 country

Bolivia, Colombia, Ecuador, Peru, and Venezuela. Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. Lande and VanGrasstek (1986).

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practices petitions that were filed with the USTR during 1985-2000, 128 concerned workers' rights.26 Failure to meet this criterion has led to the temporary or permanent suspension of GSP privileges for Chile, Maldives, Mauritania, Paraguay, Sudan, and Syria, and their termination for Liberia, Nicaragua, and Romania. Other common topics of complaint in annual reviews concern expropriation disputes (which led to the suspension of Ethiopia's benefits during 1980-1993), intellectual property rights, and market-access issues. The protection of intellectual property rights is among the most important designation criteria. The United States demonstrated the potential use of GSP privileges in trade disputes when in 1997 "the US Government announced the suspension of 50% of Argentina's GSP benefits effective in April 1997 because of Argentina's lack of patent protection for pharmaceuticals".27 The benefits extended to countries can also be modified as a result of other policy considerations, such as the extension of more preferential treatment to favoured trading partners. On three occasions, US officials have conducted special reviews of the GSP to grant speedy and favourable treatment to the petitions submitted by partners from specific regions. The United States conducted special reviews for Andean countries in 19891990, Eastern European countries in 1991-1992, and sub-Saharan African countries in 1997. The question arises to what extent do some of the conditions set by preference givers that beneficiaries, including in relation to these non-trade concerns, meet the criterion of 'non-reciprocity'? If special incentives or penalties, requiring the fulfilment of conditions by the beneficiary, are applicable to a sub-group of GSP beneficiaries other than LDCs that meet the conditions, are these covered by the Enabling Clause? To what extent would it be wiser to use other tools than trade preferences - e.g. targeted aid, structural adjustment programmes or technical assistance - to achieve desirable social goals? These questions need to be addressed at the political level since there is no legal redress within the existing WTO rules. This is because the Enabling Clause isolated the GSP from the scope of main GATT rules. Beneficiaries of the GSP do not have a legally enforceable right to these preferences, which are not 'bound' in the donors' tariff commitments (Kessie, 2000). As noted earlier, the Enabling Clause is couched in permissive rather than mandatory language, so that donors consider that

26 27

Secretariat's calculations based on data provided by USTR. Office of the US Trade Representative (1997), p. 11.

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they may unilaterally modify, extend or withdraw such preferences, including the coverage of beneficiaries. In other words, beneficiary countries have no recourse to multilateral rules in any disputes regarding the implementation of the programme.

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10.6. Conclusions Despite the Marrakesh Agreement, the treatment of development issues in the detail of the WTO Agreements in effect represents a continuation of a 50-year process of the patching on to the GATT of development provisions that were an integral part of the Havana Charter, and it is far from clear that the Doha Declaration is a departure from the quick fix approach. The philosophical underpinning of the WTO system is that of a single system of rights and obligations dedicated towards further trade liberalisation with supportive rule making, monitoring and enforcement mechanisms, rather than 'trade as if development really mattered'. In this view, S&D treatment is essentially a means of lifting developing countries to the same level of rights and obligations as other WTO Members, and this can be met by technical assistance and transition periods to help developing countries arrive at that level. However, the paucity of such assistance, its orientation to rule-making (rather than on good policy) and the arbitrariness of the transition periods contributed much to the disillusion of developing countries with the WTO that manifest itself so forcefully in Seattle. The Bretton Woods institutions could well provide incentives or support to developing countries to implement WTO obligations, as well as structural adjustment problems arising therefrom, without further conditionality. Such a view of S&D treatment - that amounts to no more than lifting developing countries to the same level of rights and obligations as other Members - must not be confused with lifting developing countries to higher levels of development. While trade liberalisation, supportive rule-making and dispute settlement can assist the development process, it is not a sufficient condition for development. Indeed, precipitate liberalisation can have serious negative impacts, especially in the short term on countries that can least afford it. This is why S&D provisions in the WTO need to look beyond technical assistance and transition mechanisms towards trade mechanisms and policies that can contribute to development. The Uruguay Round seemed to point to a more subtle approach to S&D treatment - at least as a transitional mechanism - in extending the special provisions for LDCs, while also creating additional provisions such as Annex VII of the Subsidies Agreement and allowing for assistance to NFIDCs. This can be interpreted in two ways. On the one hand, it can be seen as creating special sub-groups of countries that would receive

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differential levels of S&D treatment. On the other, it can be seen as an issue-oriented approach, by which the WTO would deal moreflexiblywith countries facing certain, defined but specific problems.28 The new Doha text on small economies seems to point to further calibration within the WTO system. A realistic view of the needs and capacities of developing countries from Afghanistan to Singapore certainly seems to point to the need for a different approach to that of a single commitment to taking on greater and greater levels of obligations. The way in which the GSP has evolved - as well as the differentiation that has started to appear in the WTO system suggests greater calibration or tiering of benefits as one form of response. However, such differentiation is a divisive issue, as many developing countries fear that it points to the progressive reduction of their benefits as they develop - graduation of beneficiaries or elimination of certain exports under competitive needs provisions of GSP, and so on.29 As they would point out, many of the more advanced developing countries have considerable regional disparities and infrastructure weaknesses, and they do not have the resources of the developed countries use to address such issues (e.g. the EU solidarity funds). Again, integration in the WTO system and the world economy calls for far-reaching supply side and programmes, and programmes to support structural changes that are not covered by the WTO. As noted in studies on the LDCs (e.g. UNCTAD and Commonwealth Secretariat, 2001), supply-side constraints may be more important than market access for some countries, and this must necessarily be addressed by the IFIs and relevant UN agencies as well as bilateral donors. It also needs to be emphasised that the WTO could do much for developing countries that does not require S&D treatment. For example, as numerous market access studies have shown, tariff peaks and escalation and the application of WTO rules in various areas have been biased against developing countries. The dismantling of barriers through MFN liberalisation in agriculture, textiles and clothing to levels comparable to averages for industrial goods generally would bring forth considerable benefits to the developing countries, estimated in some studies

28

Arguing against flexibility, Page (2001) suggests that it would be better "to accept unsatisfactory categories, badly defined and administered, rather than no rules". However, if an issues-based approach were possible, then there might be flexibility in determining countries' readiness to comply. 29 Page (2001), noting the leadership role of large developing countries, suggests that graduating them would effectively decapitate the developing country's leadership in negotiations.

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at $100 billion. This is much greater than the benefits estimated to derive from GSP (including our own calculations in this article) and much more than could be expected from making technical adjustments to GSP schemes. Liberalisation in services sectors of interest to developing countries could potentially bring even greater benefits than that in goods. In sum, tackling the development issue is a central challenge to tailor the international economic framework to meet the genuine needs of development. The Doha Declaration very much follows the approach of patching up the system that has brought limited benefits in the past, with S&D exhortatory language added at every opportunity throughout the text. It remains to be seen whether this can be turned into legal enforceable commitments and whether the political will exists to fulfil the promises on development made at Doha. As stated earlier, we do not challenge the need for progressive liberalisation or better governance, including through an improved international framework of rules. But patching up the WTO wherever it springs a leak is not a very satisfactory response to the need for a serious re-think about the way in which the international economic institutions address trade and development issues. Acknowledgements The authors take the opportunity to express a debt of gratitude to J. Michael Finger whose incisive comments, encouragement and dedication to the cause of development have provided a lasting inspiration. References Baldwin, R.E. and T. Murray (1977), "MFN tariff reductions and developing country trade benefits under the GSP", Economic Journal, Vol. 87, pp. 30-46. Brown, D. (1988), 'Trade preferences for developing countries: a survey of results", Journal of Development Studies, Vol. 24, pp. 335-363. Clague, C.K. (1972), 'The trade effect of tariff preferences", Southern Economic Journal, Vol. 38, pp. 379-389. Karsenty, G. and S. Laird (1987), "The GSP policy options and the New Round", Weltwirtschaftliches Archiv, Vol. 123, pp. 262-295. Kessie, E. (2000), "Enforceability of the legal provisions relating to special and differential treatment under the WTO Agreements", Journal of World Intellectual Property, Vol. 3(6), pp. 954-975. Laird, S. (2000), "Millennium round market access negotiations in goods and services", CREDIT Research Paper No. 00/4, University of Nottingham. Laird, S. (2002), "Does the DDA reverse the ADD?", Paper presented at the Mediterranean Development Forum IV, Amman, 8 April 2002.

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Lande, S. and C. VanGrasstek (1986), "Renewal of the generalised system of preferences: neoreciprocity and the newly industrialised countries", in: D.C. Heath, editor, The Trade and Tariff Act of 1984: Trade Policy in the Reagan Administration, Lexington, MA, Chapter 4. McPhee, C.R. (1989), "A synthesis of the GSP programme", Foreign Trade Review, Vol. 24, pp. 190-234. OECD(l999),Post-UmgmyRoundTariffRegimes,AchievenientsandOutlook,?ms:OECD. OECD (2001), Development Dimensions of Trade, Paris: OECD. Office of the US Trade Representative (1997), National Trade Estimate: Argentina, Washington, DC: US Government Printing Office. Page, S. (2001), Country Classifications and Trade: Report Prepared for the Department for International Development, London: Overseas Development Institute. Pangestu, M. (2000), "Special and differential treatment in the millennium: special for whom and how different?", The World Economy, Vol. 23(9), pp. 1285-1302. Pelzman, J. (1983), The US Generalized System of Preferences; An Evaluation and an Examination ofAlternative Graduation Programs, Washington, DC: US Department of Labor. Safadi, R. and S. Laird (1996), "The Uruguay Round Agreements: impact on developing countries", World Development, Vol. 24(7), pp. 1223-1242. Sapir, A. and L. Lundberg (1984), "The US generalized system of preferences and its impacts", in: R.E Baldwin and A.O. Krueger, editors, The Structure and Evolution of Recent US Trade Policy, Chicago: NBER. South Centre (1999), "Special and differential treatment for developing countries in the WTO", Trade-Related Agenda and Trade Working Papers, 2, Geneva. UNCTAD (1964), Towards a New Trade Policy for Development, E/CONF.46/3. UNCTAD (1985), The History of UNCTAD 1964-84, New York: United Nations, ; . Document No: UNCTAD/OSG/286, UN Publication Sales No. E.85.H.D.6. UNCTAD (2000), Handbook on the Scheme of Japan: 2000/2001, Geneva. UNCTAD (2001), Generalized System of Preferences - List of Beneficiary Countries, UNCTAD/ITCD/TSB/Misc. 62. UNCTAD and Commonwealth Secretariat (2001), Duty and Quota Free Market Access for LDCs: An Analysis of Quad Initiatives London and Geneva, Document No: UNCTAD/ DITC/TAB/Misc. 7. Whalley, J. (1999), "Special and differential treatment in the millennium round", CSGR Working Paper No. 30/99, University of Warwick and ESRC. WTO (2000), Participation of developing countries in world trade: recent developments, and the trade of the least-developed countries, Note by the Secretariat (Document No: WT/COMTD/W/65 of 15 February 2000), Geneva. WTO (2001a), Implementation of Special and Differential Provisions in WTO Agreements and Decisions (Document No: WT/COMTD/77 Rev. 1 of 21 September 2001), Geneva. WTO (2001b), The Generalised System of Preferences: A preliminary analysis of the GSP schemes in the Quad, Note by the Secretariat, (Document No: WT/COMTD/W/93 of 5 October 2001), Geneva. Yusuf, A. (1980), "Differential and more favourable treatment: the GATT enabling clause", Journal of World Trade Law, Vol. 14(6), pp. 505-515.