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Global trade war: where do developing countries stand?


Are “developing’ countries privileged by their status in the World Trade Organization? In fact, this tag opens doors to various trade flexibilities: it seems to burden Donald Trump as he insisted to “end unfair trade benefits” on July 2019. But, how far is that true?

This dispute happens as international trade has become the stage of a violent confrontation between the US and China: a “trade war” which is paralyzing the WTO, particularly as this multilateral institution is attempting to reform itself.

We interviewed Ms Aileen Kwa, a researcher, trade negotiations expert and advocate, heading the Trade for Development Program at the South Center* to learn more about the complexities of the crisis.

What reform is the US putting on the table?

There are four main reforms that were requested by the US and the developed countries. The first reform is relating to the WTO’s rule of consensus regarding decision making. According to this rule, no negotiation can take place unless there is a consensus on its negotiation agenda between all the members a process they want to reform.
The second element of the reform states that several developing countries should not avail trade flexibilities (S&D treatment).
A third element they have been insisting on is what they call transparency and notification measures: the necessity that members make all notifications formally. The proposal indicates that members who default on notifications should be punished.
And the last is about bringing new issues to the discussion, e-commerce for example.

And how did developing countries respond to these suggestions?

Regarding transparency and notification, developing countries were clear that they do not agree on additional notifications. It is impossible for developing countries to abide by the notifications’ requirements. Responding formally to everything, attending meetings and engaging with officials in the capitals of our countries is a resource-intensive process, whereas many of us, including Tunisia’s delegation, are under-represented. Tunisia has only one delegate, trying to cover all the WTO committees and negotiations. It’s an impossible situation.

With regards to other reform suggestions, developing countries had their position on how the reform of the WTO should be; they presented a proposal of which Tunisia was co-sponsor.

The aim of this proposal was to say that the idea of a WTO reform is not a new question. The developing countries had been asking for it since the first round of negotiations called “the Uruguay round” (1986-1994). Therefore, there was already a set of reforms, and a suggested reform agenda from the perspective of developing countries, that was not taken into consideration and which aims at addressing many of the imbalances coming out of the Uruguay round.

The proposal stresses that there are a lot of WTO principles that developing countries want to preserve including consensus decision making. It also reminds us of the issues that developing countries want to discuss such as S&D treatment, aspects of agriculture’s development, implementation issues, and balancing some of the imbalances from the GATT agreement.

But how did all this “battle of reforms” start?

After the Buenos Aires Ministerial Conference in 2017, some developed countries (the EU, Japan, and the US) got frustrated at the fact that developing countries, especially India, South Africa and the Africa Group were not in favour of launching negotiation in some new trade area that they suggested, especially e-commerce. In their opinion, developing countries used the consensus decision-making of the WTO to stop the negotiations on new areas within the WTO.

As a result, during the Ministerial Conference they set up, what is called a plurilateral initiative in the areas of e-commerce, investment facilitation among others. During those meeting, members of developing, developed and least developed countries of the WTO who have accepted to negotiate these topics, will gather and discuss ways forward.

They also started to meet in trilateral form – US, EU and Japan- at the Ministerial level in order to discuss these same issues as well as a reform of the WTO. A big part of the reform they agree on is how to bypass the consensus format of decision making in the WTO in order to continue these plurilateral discussions and negotiate issues of their interest without going through the consensus process. They would later bring the outcome to the multilateral format.

Developing countries view this as a problem, because it would be contrary to the rules of the WTO and will not accept the outcome. It was however not possible to stop these meetings. The breaking point has not come yet: the situation will most likely get more complicated when they finish their negotiation and decide to bring it to the multilateral level.

What did developing countries think of the USA July memorandum on the elimination of what they called “Unfair trade benefits”?

The memorandum was very threatening, yet funny. The US submitted the proposal to reform access of developing countries to the trade flexibilities under the Special & Differential treatment twice this year, in January and in May.

Developing countries refused the US proposal and they made it clear why they think the proposal is unfair and why they still deserve S&D treatment.

But despite their opposition, the USA submitted this same proposal again in July, and of course, did not get support for it. A few days after this, the memorandum was released.

The Special and Differential (S&D) Treatment
These are special rights and flexibilities granted to developing countries under the WTO due to their development status. These flexibilities offer the privilege of maintaining some tariffs to protect the local economy or enjoy longer transition periods to implement WTO rules. These provisions allow more policy space for developing countries to strengthen their economic fabric.
For instance, developing countries were given until January 2000 to adjust their legislations and implement the TRIPs provision. Least Developed Countries were given more time, until 2006 to adapt their legal frameworks and enforce protection of Intellectual property rights.

Why do Developing countries refuse this reform?

The US proposal argued that the poverty rates dropped in Developing countries, and that shall make them equal to developed countries in applying the WTO trade measures. That means they will no longer enjoy flexible implementation calendars, neither should their exported products benefit from preferential treatments, among other flexibilities.

This argument may be true if we use the $2 poverty threshold used by the World Bank. However, if we use $5 or $7 per day as the poverty threshold -which is a more accurate measure according to experts-, the number of poor people increases tremendously, and we can see that people in poverty are still overwhelmingly concentrated in developing countries, including in the most efficient/blooming economies like China. This is why Developing countries find the US proposal unfair and are opposed to it.

Do you think this reform can get through despite developing countries opposition?

It is quite hard to answer. I think the US was very ambitious with its reform. As a powerful country, the US can ask for a lot of things, exert political pressure and get away with almost everything. But how much can they continue pressuring a group of developing countries? I very much doubt that countries like India or China will give up on their position.
Developing countries also have their reform agenda. They argue that the Uruguay round, which is the first trade negotiations round, concluded in 1994, ended up with several imbalances in fields like Agriculture, and Intellectual property, and that it gave developed countries many flexibilities which are not available to developing countries, like reverse S&D treatment.

In their Trade Policy Review, the US mentions the WTO reforms are one of the pillars of its policy. What could possibly happen in case there is no agreement?

If the US under the Trump Administration continues to put pressure in the next ministerial conference which will be held in Astana, Kazakhstan in 2020, I think this will cause everything else to collapse.

This goes beyond the WTO. Once you turn your back on the WTO, you also do so on other multilateral forums. What about the United Nations Framework Convention on Climate Change (UNFCCC) negotiations? This is not only about the WTO, but about a big systemic shift.

The US still refuses to take part in renewing the WTO Appellate body, the WTO organ in charge of settling trade disputes, which is threatening to become dysfunctional by December 10th. Is this another mean of pressuring the passing of the reforms they want?

I used to think that the US used this method as a bargaining trick but now I am more inclined to think that the US just does not want to revive the Appellate Body, even if the reforms go through. They simply do not want an appellate body which in some cases has ruled against the US.

Why do developing countries refuse to launch negotiations about issues like e-commerce?

The stakes in negotiating e-commerce are huge. What the US wants is “free data flows” which consist in opening up our digital markets. When the data flows freely, so will the online goods and services. This bypasses any of the tariffs that we have in place right now, as well as the GATT limitations. Today, the products and services concerned might be limited but tomorrow it can be anything under the sun.

This is the heart of the problem. A lot of developing countries are not yet aware of what the game is about. The narrative that is presented to them is that e-commerce is very good for the economy, that it is a reality going forward, that they and the WTO should keep up to with the 21st century, and that all countries need to have trade rules for their digital economy. They are promised programs of assistance in building their digital capacity.

If there is no agreement, do you think we will witness a bigger wave of bilateral treaties in which these measures are discussed?

I think, regardless of what will happen in the WTO, bilateral agreements will continue anyway. They are struggling a lot in any case. Since the Uruguay round, bilateralism was used as a threat by developed countries against developing countries. They would say “if you don’t agree on this in the WTO, we will go through FTAs.” And in fact, they concluded the Uruguay round and launched the NAFTA the same year. I think that they will continue trying to get what they can get in any forum.

How did the Doha round die? Is there any chance of revival?

The negotiations of the Doha round have been suspended to a large degree because some countries would prefer it not to exist. But the Doha round was never formally closed. In every single ministerial conference since its launch, the Ministers would reaffirm the Doha round, before they continue to negotiate. The US is saying that the Doha round died in Nairobi. But there is no formal decision or statement which states this. So technically and legally, the Doha round continues.

Do developing countries still want to negotiate?

Yes, they still want to negotiate the development issues on the Doha round. It is the opposition of several developed countries which prevented further negotiations. But in the end, they cannot dispute the fact that there are still pending, unsolved Doha issues. And it is in our right to call on these mandates for further negotiations.

* South Center is a research-oriented developing countries organization based in Geneva, working on assisting developing countries in presenting development-centered policies in international policy forums.

This interview was conducted in Summer 2019.

Mohamed Haddad supervised, An Hoang-Xuan & Khansa Ben Tarjem reviewed this paper.

Nada Trigui

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