World Trade Organization’s Special and Differential Treatment

Introduction

In one way or another, special and differential treatment (S&D) has been a feature that defines the relationship between developed and developing countries in international trade for a long time since the end of world wars. For many years, different governments from developed countries tried to fight against establishment of set of principles that would serve the interest of all countries involved in multilateral trade. They argued that due to diverse set of nations, it could be difficult for the established rules to address interests of all nations. Currently, developing countries are found to fight for adherence to the established rules. Most of the developed countries that are members of the world trade organization re not responsive to the needs of developing countries.. There has been the problem of member countries coming up with a ground where they can engage debate and address their issues in a way that it will lead to productive outcomes. World Trade Organization (WTO) comprise of over twelve dozen member states which has different priorities as well as diverse economies. Failure to come up with an agreement on how to manage these diverse interests of member states is seen as one of the major threats to the organization (Hoekman, Michalopoulos & Winters 19).

Brief History of Special and Differential Treatment

Special and differential treatment in world trade organizations has evolved through four phases. The first phase began in 1948 when general agreement on Tariffs and Trade (GATT) was established to the beginning of Tokyo Round in 1973. The second phase was Tokyo Round which started from 1973 to 1979. After the end of Tokyo Round, it came the third phase of S&T which extended t the end of Uruguay Round in 1995. The current phase marks the fourth phase which came after the end of Uruguay Round in 1995. In all these phases, there are significant events that took place involving participation of developing countries in multilateral trade. The first phase up to the Tokyo Round was dominated by problems of developing countries in accessing international market (Kessie pp. 955-967). There were numerous conditions that developing countries had to meet for their exports to reach developed countries’ markets. One of the major event that took place during this phase was the meeting held by GATT contracting parties in 1957. Various problems including fluctuating commodity pricing, agricultural protectionism and lack of export proceeds to be at par with import demands in developing countries were cites as some of the drawbacks that discouraged the success of international trade. A board of experts was established to look into these issues chaired by Professor Gottfried Haberler. The board found out that whatever developing countries got from their exports was too little to meet all their development needs. Barriers in developed countries were cited as the main reason for these disparities. Some developing countries were also found to contribute to the problem. The contracting parties came up with three committees aimed at addressing these problems.

Tokyo Round of 1973-1979 changed the focus on trade policies from import substitution to encouraging greater export orientation. Member states had started understanding the inborn limitations of depending on import substitution. The move by member countries towards flexible regulations in respect of trade policy incentives meant that import competition was to go high (Kessie pp. 968-976). Development debate among the GATT contracting parties focused on developing countries’ own trade policies and ways of helping them gain markets access for their exports. Emphasis on non-tariff trade measures is one of the features that distinguished the Tokyo Round from other phases. Much of the negotiation made by developing countries during the Tokyo Round aimed at reducing the extent to which the new agreements on non-tariff measures would lead to financial problems in their countries. This aim, together with emphasis on non-reciprocity in market access by developing countries led to them agreeing on limited access to market and comparatively few tariff bindings. A code was established that stipulated that the agreed measures only applied to signatories. Most of the developing countries declined to sign codes that covered technical barriers to trade.

Tokyo Round was credited for the flexibility if offered to developing countries as well as its support to their development needs (Pangestu pp. 1285-1297). However, some complained that the degree of non-engagement encouraged in the phase was detrimental to developing countries. They claimed that GATT did not help developing countries in coming up with their trade policies and that since developing countries contributed little in the discussion, they also received little. The problem with agreements made in the Tokyo Round was lack of GATT to consider the different needs of developing countries. Decisions were reached upon by generalising the needs of developing countries.

The third phase saw a twist in the direction of special and differential treatment debate. By the end of the phase in 1995, developing countries had gotten big share of commitment than before. Some countries had experienced rapid growth and were increasingly diversifying their economies. This helped them in gaining ground to fully participate in international trade. It also led to them changing their interests in negotiations. Some countries felt that it was imperative for GATT to address issues in agriculture which had bee neglected for many years. The same applied to textile and clothing. Some of the developed countries expressed their interest in seeing that the system also focused on services and intellectual property rights. The need for developing countries to assume high level of responsibilities was also introduced in the phase (Pangestu pp. 1298-1302).

The fourth phase started with a big challenge to developing countries as they struggled to assume their obligations stipulated in the Uruguay Round. Some of the developing countries claimed that they had not been fully represented in the Uruguay Round. This was because not all of the obligations they were assigned during Uruguay Round were associated with national economic safety and development priorities. There have been different forums aimed at coming up with measures to ensure that all parties participating in WTO negotiations and decision making are treated fairly. One of the current problems affecting developing countries is cost, human capital and administrative requirements for them to be able to effectively assume their obligations. Developed countries have been requested to help addressing these problems through technological assistance and capacity building. Developing countries are also seeking modification of WTO agreements to ensure that they are more supportive to developing their economies (Stevens pp. 18-23)

Advantages of special and differential treatment

Special and differential treatment has been found to benefit developing countries. To a large extent, the agreement was reached upon to ensure that there is a cordial relationship in multilateral trade. Achievement of sustainable development is one of the main concerns of world trade organization. In its legal institutions, the organization clearly states this as their major objective. International rules that affect trade in WTO are seen to significantly ensure that there is sustainable development in all developing countries. The fact that member countries are discussing on methods of providing subsidies to and improved discipline with respect to trade poses a great benefit to developing countries (Stevens pp. 24-25). There are hopes that this will result in enhancement in special and differential treatment of developing countries. Developing countries are expected to experience rapid development ever due to increase in market access for their exports. Developing countries concerns are incorporate in trade negotiations through development of improved disciplines that foster more sustainable trade by significantly controlling effort and capacity-enhancing subsidies. This is hope to help developing countries come up with new markets access chances as well as providing incentives for industries from developed countries to be able to subsidise developing countries. The other benefit is incorporation of development needs in various agreements arrived at by partners in WTO. These are in form of functional special and differential treatment guidelines. The established guidelines helps in sustainable development in that they ensures that whenever new rules are introduced, they do not contradict the underlying development policies (Whalley pp. 1065-1073).

Market distortion through provision of highly subsidised products by developed countries has been one of the major factors that have led to distortion of prices of different commodities in the market. It has also resulted in increase in competition in the market making it hard for developing countries to get market for their commodities. In addition, subsidies have led to people overinvesting on one field beyond sustainable levels. This has prompted member countries to look for ways of ensuring that developing countries are able to overcome competition in the market. Measures to reduce harmful subsidies are being developed that will ensure that there is an equitable access to market for commodities coming from both the developed and developing countries. This would ensure that no country experience hardships in selling its produce (Whalley pp. 1075-1093). Apart from helping developing countries overcome harmful subsidies, S&D focus on coming up with other subsidies that would help developing countries pursue their developmental and environmental goals.

Based on different need of different developing countries, World Trade organization has started coming up with different methods of treating the developing countries. Increase in coverage as well as implementation of trade regulations has led to changes in needs that were initially treated as special. Initially, WTO used a system that tried to offer equitable access and certain trading conditions to all developing countries. This was through encouraging developing countries to concentrate on market and commodity diversification as well as industrialization. However, with time, effort has been made to treat each developing country individually by addressing its problems. Special and differential treatment has been credited for helping most of the developing countries attain their development goals through offering them technical assistance based on their demand. Most of the developing countries have enjoyed privileged access to markets in developed countries (Ceara para. 3).

Disadvantages of Special and differential treatment of the WTO

Despite the WTO being able o ensure that there is equitable and sustainable development among the developing countries, there are various drawbacks that have been found to hamper the achievement of its objectives. One of them is the numerous requirements that developing countries are expected to meet for them to be specially treated. The size of the benefits developing countries accrue from multilateral trade depends on various conditions such as rules of origin. For instance, some of the beneficiaries in WTO are expected to source their imports from other countries that are also beneficiaries of the system regardless of the quality of products offered by these countries. The rule of origin is seen to adversely affect most of the developing countries which are not capable of sourcing inputs domestically. Establishment of preferential system in WTO significantly affect production and distribution methods in developing countries. Excessive strict requirements hinder some of the developing countries from getting access to international production networks where various components are produced in different countries (Ceara para. 4).

Another problem that has rocked S&D is its nature of discretionary decision making. Once a country has managed to have access to market in developed countries, it does not imply that the country will continue enjoying the market. The developed country may withdraw these privileges discretionary through graduating the developing country or scraping off some of its products from its market. Despite GATT having a pre-set criterion for graduating different countries, there is till a room for ad hoc decision making if domestic industries in the developed country perceive to gain competition from products imported from developing countries. Countries that enjoy preference scheme increase their production to meet the demand in the market. Dropping such countries leave them with overcapacity and production structure that does not go with comparative advantage (Michalopoulos 87). The same case happens to when preference is battered through tariff reductions in multilateral negotiations. Developing countries invest heavily in negotiating resources for developed countries to extend their special treatment and reduce non-discriminatory tariff reduction. Some developing countries have argued that in such instances, developed countries ought to financially compensate them for reduction in preference margin.

Generally, the vast majority of S&D have been criticised for not distinguishing the different needs affecting varied developing countries. For effective and equitable development, there is need for special and differential treatment scheme to clearly understand needs for individual developing country. This would help in ensuring that these needs are effectively addressed. Instead, the available S&D provisions have been left to the discretion of the entire WTO membership. Beneficiaries of the provisions are defined in terms of a poorly specified group referred as developing countries. The system generalizes needs for all developing countries without putting into consideration that different countries have different development needs.

Despite special and differential treatment of the World Trade organization having some drawbacks, it has been found to have significant benefit to developing countries. Through the system, countries have been able to get market for their products as well as get products from developed countries. It has been seen as one of the schemes that has facilitated developing countries come up with strategies aimed at attaining their development goals (Michalopoulos 95). Developing countries have been given more responsibilities in managing issues to do with regulations in the multilateral trade. They have also been given the privilege of being represented in negotiations. As a result, they have managed to ensure that all trade regulations introduced in the organization do not work towards hampering their development objectives.

Success and failures of special and differential treatment

To some extent, S&D has been successful in helping developing countries come up with development strategies aimed at helping them attain their development objectives. For many years developing countries lack finance to help in development due to lack of market for their products. Competition in world market rocked the developing countries out of multilateral trade. Numerous conditions that developing countries ha to meet in order to access market in developed countries also made them unable to get funds for their development projects. Special and differential treatment has helped most of the developing countries get international market for their products thus facilitating in their development (Garcia para. 2). They have been able to overcome competition through introduction of subsidies. Some countries have also benefited from technical assistance by the developed countries. As a result, developing counties have not only managed to access international market but they have also been able to gain competitiveness in the market.

The system has also succeeded in allowing developing countries assume high level of obligations with respect to trade negotiations and regulation setting. Over the past, developing countries complained of not being well represented in decision making. This made them perceive as if developed countries always set rule that favoured their growth at the expense of the developing countries. Currently, developing countries has assumed the highest level of obligations in ensuring that the system is successful. They have been also granted ample time to organize themselves accordingly before assuming the obligations. In spite of this success, more still need to be done in S&D. The treatment has been changed from actions to statements of good motives with little effort being made to achieve what is outlined in the treatment (Garcia para. 4).

There are arguments that the diversity of developing countries makes the treatment a difficult concept to practice. Despite many countries reaching take-off stage, and their needs changing, the treatment has not been changed to cater for these changes in needs. Such countries have generated enough resources to sustain their development goals while others have been able to gain enough technological innovations. Including these countries in the category of developing nations makes it had for the countries to be able to support their development objectives. The perception of the treatment that it is possible to address competitiveness problems by establishing markets foe products from dev eloping countries spell doom. Addressing market inequalities without coming up with proper compensatory mechanisms will lead to the inequality getting more severe rather than eliminating it. This is because it will fortify and empower political and market ideologies that alter competition. This leads to increment in poverty level among the developing countries making it hard for them to attain any national development (Garcia para. 5).

Effects of special and differential treatment on international market

Since its introduction, international market experienced significant expansion. The ability by developing countries to have access to international market saw introduction of new stakeholders in the market. It also saw introduction of new rules governing operations in international market. These were established to protect the weak participants from being exploited by the already established ones. Reduction of conditions required to participate in international trade led to new products being introduced in the market as well as establishment of ample relation between the participants (Hewitt, Koning & Davenport 143).

Conclusion

For special and differential treatment to attain its objectives there is need for the affected parties to come up with rules that recognize individual country as an entity rather that generalizing them under developing countries category. This will help in establishing various mechanisms to address the different development needs facing varied countries. Apart from helping developing countries meet their development goals, it will allow for flexibility to be able to address the changing needs as various countries continue progressing in their development goals. There is need for the parties to come up with various characteristics to identify different sub-groups of World Trade Organizations. This will help in treating these groups differently thus enhancing their development. This is being hampered by political challenges. It is hard for members to come up with a consensus on the way to group different countries within WTO. This calls for great work and devotion from all countries if they have to realize these objectives.

Works Cited

Ceara, Miguel. “Special and Differential Treatment and the WTO.” 2002. Web.

Garcia, Frank. Beyond Special and Differential Treatment. 2009. Web.

Hewitt, Adrian, Koning, Antonique & Davenport Michael. The Impact of the Uruguay Round Agreements on Manufactured Products of the African, Caribbean and Pacific Group. Vienna: United Nations Industrial Development Organization, 1995.

Hoekman, Bernard, Michalopoulos, Constantine & Winters, Alan. Special and Differential Treatment for Developing Countries: Towards a New Approach in the WTO. World Bank: mimeograph, 2003.

Kessie, Edwin. “Enforceability of the Legal Provisions Relating to Special and Differential Treatment under the WTO Agreements.” The Journal of World Intellectual Property, 3.6, (2000), pp. 955-976.

Michalopoulos, Constantine. Developing Countries in the WTO. New York: Palgrave Macmillan, 2001.

Pangestu, Mari. “Special and Differential Treatment in the Millennium: Special for Whom and How Different?” The World Economy, 23.9, (2000), pp. 1285- 1302.

Stevens, Christopher. “The future of Special and Differential Treatment (SDT) for developing countries in the WTO.” Institute of Development Studies (IDS) 163, (2002), pp. 18-25.

Whalley, John. “Special and Differential Treatment in the Millennium Round.” World Economy, 22.8, (1999), pp. 1065-1093.