On February 18, 2021, the European Union (EU) released an annex to the new trade strategy produced by its internal trade policy review, focused on WTO reform. While there are many issues raised in the document, I would like to focus on a few notable changes to the EU’s reform proposal on special and differential treatment (SDT) from that expressed in a 2018 concept paper. The EU appears to have struck a compromise between a number of proposals that have been made to date—including the most controversial proposal put forward by the United States. This should be a welcome development, and I think it sets forth a pragmatic way forward on this issue.
The EU seems to have offered a significant compromise to the U.S., coming out in support of some “crosscutting criteria” to determine the grant of differential treatment. In February 2019, the United States proposed a draft general council decision that outlined four criteria, which if any are met, would not allow Members to avail themselves of special and differential treatment “in current and future WTO negotiations.” It included the following:
i. A WTO Member that is a Member of the Organization for Economic Cooperation and Development (OECD), or a WTO Member that has begun the accession process to the OECD;
ii. A WTO Member that is a member of the Group of 20 (G20);
iii. A WTO Member that is classified as a "high income" country by the World Bank; or
iv. A WTO Member that accounts for no less than 0.5 per cent of global merchandise trade (imports and exports).
Comparing this to what the EU just released, there are some clear overlaps:
… the EU expects full commitments in ongoing negotiations and future agreements from a) OECD members (including OECD accession candidates); b) countries classified as ‘high income’ by the World Bank; and c) countries that represent a sufficiently high share of global exports in general or in the sectors concerned by a particular negotiation. Due to its weight in the system, China should lead by example and not claim SDT in any ongoing negotiation.
By singling out China, the EU is the first to make explicit its unique position in the WTO and the world trading system more generally. Previous proposals have hinted at this, and even used China as an example in some cases, but not gone so far as to say China should no longer claim SDT. The U.S. proposal from February 2019 mentions China 51 times, with India coming in at a distant second with 23 mentions. So while the United States uses these two countries as frequent examples, its proposal never explicitly calls on them to give up SDT. Furthermore, the former U.S. Ambassador to the WTO, Dennis Shea, stated at a May 2019 General Council meeting: “I want to be clear that the US proposal does not require any Member to change its declaration of its development status.” However, the practical implications of the criteria in the U.S. proposal would de facto lead to a change in status in future negotiations.
The one criteria that the EU omits from its proposal is membership in the G20, something that can likely be explained by the fact that this would also include India. Another section of the document focuses on the importance of engaging in discussions with China and India to move WTO reform forward. There, the EU states that “India has a highly dynamic economy and is a leading player in the G20, although its overall level of development and competitiveness cannot be compared to that of China.” This was an early critique of the U.S. proposal by Anabel González, who pointed out that “it would disallow India, Indonesia, and Vietnam, for example, to self-declare, even though they are certainly developing countries.” As others have noted, the G20 criteria is a blunt one, and doesn’t help differentiate better among developing countries. The EU’s exclusion of it is a positive development.
The elaboration of the United States’ fourth criteria to highlight the importance of sectoral trade in particular negotiations is also a notable addition, with the EU acknowledging that the practical way forward is through an “agreement-by-agreement” approach. Jim Bacchus and I highlighted this issue as well in our “alternative approach” to SDT, which emphasizes the need for an evidence-based, case-by-case approach to SDT, so that the development of the poorest countries can best be advanced, while at the same time ensuring that advanced developing countries carry their weight in the organization. This means that some countries could be considered “developing” in some negotiating contexts, and “developed” in others. Take the fisheries negotiations, for example, where China is counted among the five main providers of fisheries subsidies (also including the European Union, the United States, South Korea, and Japan) who together account for 58 percent of all global fisheries subsidies. China has also been the top exporter of fish and fish products since 2002. If it’s a developing country for the purposes of this negotiation, then that status has lost all meaning.
A few other observations from the EU’s recent proposal are also worth mentioning. Borrowing from proposals led by Norway and another from Canada, the EU also pays attention to the challenge of “capacity constraints.” The issue of capacity was also raised by Bolivia and several other developing countries, who rightly argued that “non-compliance is not willful” due to a lack of human resources and capacity constraints. Notably, the EU doesn’t emphasize the Trade Facilitation Agreement as a good model to follow, like the Norway and Canada proposals do, which the United States has criticized for allowing self-selection of development status and the categories in which obligations are placed (that confer different timelines for implementation). Whether the general TFA approach is the preferred model is almost irrelevant though, because the important innovation for development was tying a category of obligations to the receipt of technical assistance. I think the EU proposal leaves room for that.
There are also a few omissions from the document. First, there’s no mention of LDCs, who were identified as a category of Members that warranted “particularly flexible treatment” in the concept paper. It’s an odd omission, but perhaps not a deliberate one. The concept paper also was more specific on how SDT could be granted on a case-by-case basis, noting, in particular, “a clear identification of a development objective.” Considering that the new proposal at length discusses the possibility of the Sustainable Development Goals providing a common cause for cooperation at the WTO, it seems like a missed opportunity to not restate how the SDGs can also be tied to the grant of SDT, as Jim and I have written elsewhere. Finally, on the issue of graduation, the EU concept paper put forward an interesting idea to make graduation a part of WTO Members’ trade policy review process, whereby they would be “encouraged to clarify in which areas they actually use existing flexibilities and to present roadmaps detailing when they would expect to be able to assume all the obligations.” I hope this idea doesn’t get abandoned, because it actually helps support another important aspect of WTO reform, increasing transparency. Members would certainly benefit from going through such an exercise, not least because it would allow for an assessment for where capacity is lacking, so that resources for technical capacity can effectively be deployed.
While SDT reform may not be at the top of the agenda on the WTO to-do list, it does make up an important component of the overall reform package. The world has dramatically changed since 1995, but many aspects of the WTO remain frozen in the past. It’s time to seriously tackle the development dimension, and the latest EU proposal could serve as the basis for a much needed compromise.
