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Economy

Developed or Developing? A Bone of Contention

Nov 22 , 2019
  • Zhou Xiaoming

    Former Deputy Permanent Representative of China’s Mission to the UN Office in Geneva

In these early days of talks about reforming the World Trade Organization, the “developing country” label has quickly become a central theme and a bone of contention between developed and developing members of the body.

Developing countries get special, preferential treatment at the WTO. For example, the ceilings on import tariffs are considerably higher than for developed members. Developing countries are also permitted to have more time to implement their obligations or commitments under WTO agreements.

The United States is now trying to define what a “developing country” is, and has proposed a set of criteria by which a WTO member should be judged.

In late July, U.S. President Donald Trump lashed out at some developing members for claiming the special status for themselves, He demanded that the “outdated dichotomy” be addressed quickly. He threatened to take unilateral action if there were no breakthrough within 90 days.

The European Union also wants to revamp the system, as it complains that many countries calling themselves “developing” have unfairly benefited from their “special and differential treatment”, or SDTs. In its proposals on WTO modernization in July last year, the EU called for a “needs-driven and evidence-based approach” that will ensure that SDT benefits are “as targeted as possible” and that “flexibilities are made available to those members who actually need them.”

SDT history goes back some six decades. When the General Agreement on Tariffs and Trade (GATT), the predecessor of the WTO, was established in 1947, there were only 23 contracting parties, and 11 of them were newly independent countries. The rich countries badly needed markets for their products and investment. For this purpose, they wanted GATT’s contracting parties in the South to open up their economies, and the poor nations outside the GATT to jump aboard.

Poor countries, however, were not so keen on liberalizing their import regimes for fear that trade liberalization would undermine their efforts to foster indigenous industries.

To entice poor nations to reduce their trade barriers, rich ones offered them favorable terms. So, in 1955, the GATT adopted provisions that exempted poor countries from the strict trade rules and disciplines of more industrialized countries. Since then, the SDT formula has become a staple of the world trading system.

SDTs have been key to bringing many developing countries into the fold of the world trade body. Since the WTO was formed in 1995, the number of members has expanded to 164 from 75, with the new entrants being developing countries. SDT provisions gave many of them a certain degree of assurance that when the sky came crashing down, they would have time to escape. They were convinced that with developing country status, they could hope to take measures that would blunt the adverse effects of market opening on their economies and peoples, so that trade liberalization would be made less painful and more bearable. Clearly, the rapid pace of WTO membership expansion would have been unimaginable if not for the SDT provisions.

Equally important, by smoothing the path of negotiations, SDTs have in no mean measure contributed to the conclusion of agreements since the so-called Uruguay Round. They have helped integrate developing countries into the global trading system, which in turn has enabled developed members to gain vastly improved market access in much of the developing world.

It is clear that, over the years, SDT provisions have been invoked to gain market access. It is, in effect, a kind of consideration given by industrialized nations for trade liberalization in developing countries. It therefore constitutes an obligation for the developed countries, and as such, it is the prerogative of developing countries to decide if they will forsake their special status. Some developing members, such as Brazil and South Korea, may want to give up the label, along with the SDT assistance that comes with it. Their decisions should be respected. And it should be the right of other developing countries to keep their status.

Developing countries should not be pressured in any way to relinquish their hard-earned legitimate benefits. Forcing them to relinquish developing country status would be unconscionable. Vast differences continue to exist between developed countries and developing ones in such areas as economic structure, GDP per capita, education and health. It would also likely be, as Reuters News Agency suggested, “another move toward essentially ignoring some WTO rules.”

Given this background, it is not surprising that the efforts by the U.S. and EU to distinguish certain developing countries from the others did not go down well with the developing countries. In Geneva, speaker after speaker from the African continent, together with developing countries from other regions, denounced the U.S. and EU plans. Developing members believe — and rightly so — that they have played their part, and the onus is now on developed countries to fulfill their obligations, rather than retreating from them.

Suspicion is growing among developing members that Washington and Brussels are plotting to drive wedges between them, with the ultimate aim of abrogating obligations to all developing members. The U.S. plan in particular is increasingly seen as “America first” in action. Many developing countries are still smarting from the collapse of the so-called Doha Round of negotiations, which they attribute to the failure of developed countries to deliver on their commitments. Once bitten, twice shy: This time around they appear to be more cautious.

Moreover, the move by the U.S. and EU would hardly help the cause of the WTO. In all likelihood, it would be counterproductive. Depriving developing countries of their status would mean taking away an often indispensable cushion for the shocks of market liberalization. This would only make many developing members more hesitant to engage in trade and investment liberalization negotiations. Ambitions would thus be weakened, and consensus would take longer to reach, if it ever could be attained again.

Consequently, contrary to the U.S. and EU claims, taking away developing country status would do more harm than good to the negotiating function of the WTO, hindering its efforts to integrate developing countries into the global trading system.

As an integral part of the multilateral system, developing country status remains relevant and valuable. On both moral and practical grounds it should be kept, not trashed.

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