Debate on S&D Treatment of Developing Members

Ambassador Shea’s Statement

At the HODs meeting yesterday, I spoke about the paralysis of the WTO’s negotiating function.

In our view, the root causes are complex and varied. They include:

• Appellate Body overreach, which enticed many Members to disfavor negotiation and instead pursue litigation to achieve desired outcomes;

• A chronic lack of transparency by many Members, especially some major players, which is distorting our grasp of key issues and undermining the foundation for negotiations; and

• Certain Members’ unjustified claim of automatic entitlement to blanket special and differential treatment (S&D), which ensures that ambition levels remain far too weak to produce negotiated outcomes. Members cannot find trade-offs or build coalitions when significant players use S&D to avoid making meaningful offers.

As we’ve discussed our S&D reform proposal with Members, we have heard three criticisms.

First, certain advanced, wealthy, or influential Members claim they have an automatic, permanent, and sacrosanct entitlement to blanket S&D. We disagree. Our approach to S&D eligibility can and must evolve to reflect the trade and development reality of today.

Second, some Members argue for a different solution – the “case-by-case” approach, where each Member is asked to contribute to the full extent of its capabilities to a set of disciplines. But we know from experience—it’s called the Doha Round—that this approach does not work when some Members are not willing to take on obligations commensurate with their role in the global economy.

• Some Members point to the Trade Facilitation Agreement (TFA) as a successful case-by-case approach to S&D, but the TFA is not a readily or generally applicable model moving forward. Recall that under the TFA, a Member may lose competitiveness if other Members fully implement the agreement and it does not. Most trade agreements operate differently, in that a Member is likely to believe it will be better off if other Members fully implement the obligations and it does not.

Third, some Members say it is folly to try to create categories of Members. This is an odd criticism, given that categories already exist. Today, there are three categories – first, those Members to which all obligations apply; second, the LDCs that enjoy enhanced flexibilities; and third, the majority of Members – around 90 – that claim entitlement to blanket S&D as self-declared developing countries.

So the starting point is not categorization, but what to do with this last category of Members that represent significantly divergent economies. These Members simply do not fit the same mold or have the same needs. The more economically advanced of these countries are clearly capable of negotiating the flexibilities they need, rather than availing themselves of blanket S&D.

As just one example, China’s global merchandise exports are 14 times greater than the combined exports of all 49 countries that the UN categorizes as LDCs. Its economy is more than 11 times the economies of all 49 LDCs combined. China’s per capita income is more than five times higher than that of the LDC average – a remarkable development since 1995, when China’s per capita income was within $900 of the LDC’s average.

China even admitted at the General Council meeting in July that China is not in the same position as Benin or Liberia. It is helpful that China recognizes that it should not receive the same flexibilities as LDCs. But does that mean that China believes it is in the same position as Pakistan or Kenya? Because today, China claims the right to seek the same blanket S&D as these and other lower-income countries.

In 1995, China’s per capita income was nearly 20 percent smaller than that of Kenya and more than 25 percent smaller than that of Pakistan. Today, China’s per capita income is nearly four times that of Kenya, and more than triple that of Pakistan.

The failure to differentiate some of this organization’s most advanced, wealthy, or influential Members from LDCs and others diminishes the value of special and differential treatment to those who need it most. It also imperils our ability to reach new agreements that could provide greater opportunities for the WTO’s poorest Members who are least integrated into the global trading system.

This issue, and the need for reform, is not going away. We look forward to continuing our engagement with Members.

Ambassador Zhang Xiangchen’s Statement

Thank you, Mr. Chairman.

I have repeated many times that, the debate on criteria to differentiate developing members is totally meaningless, as it is a systematic and directional mistake. Development is one of the key objectives of the WTO, which is also an important attraction for many countries choosing to join in this Organization. As WTO members, our focus on development should be on how to translate the concept of development into practice rather than anything else.

To be specific, our collective efforts should be focused on how to effectively enforce the existing special and differential treatment (S&DT) provisions, and negotiate meaningful S&DT for the developing members, for example in the fisheries subsidy negotiations. For the existing S&DT provisions, there should be assurance that developing members in need could truly benefit from and fully integrate into the multilateral trading system.

Mr. Chairman, we did a preliminary review on the current 155 S&DT provisions contained in the 16 WTO agreements, finding that at least 105 provisions are too vague to operate, accounting for 67.7%; for the remaining 50 provisions, at least half of them are related to transitional period or technical assistance. So, there are only 25 S&DT provisions in existing WTO agreements that are directly linked to individual Members’ rights and obligations, accounting for 16.1% of the total. It is therefore fair to say, the overwhelming majority of current S&DT provisions are only pie in the sky. There has never been an almighty blank check.

It is a long-standing consensus to make S&DT provisions more “precise, effective, and operational”, which is also a commitment across WTO Agreements. That is the very reason why developing members requested to discuss more than 200 “Implementation Issues” aiming at rebalancing the imbalanced rules from the Uruguay Round, and G90 put forward their written proposals. I fully endorse the statement made by the Ambassador of South Africa. Actually, recalling the past 20 years, G90 has been compromising by reducing their 88 original requests, to 25 in Nairobi, and to 10 in Buenos Aires, demonstrating their utmost sincerity and restraint. Such reduction is not because their request was wrong, rather it is because they do hope all Members could be engaged and thus show flexibility.

For the current 10 proposals, some are to fill the loopholes of existing provisions, such as proposing procedural arrangement to invoke Article 18 of GATT; some are to restore good practices in multilateral rules, such as treating subsidies granted by LDCs and developing members facing certain constraints as non-actionable subsidies according to Article 8 of ASCM; some are to allow developing members to have longer time-frames for transitions or comments, such as granting 180 days for members facing capacity constraints to make comments on SPS measures notified by developed members, whereas the current practice is 90 days; some are to urge developed members to honor their already-committed obligations, including technology transfer. G90 has made comprehensive responses both orally and in writing to all questions from members on their proposals. However, no progress has been made due to certain Members’ reluctance to engage.

Mr. Chairman, the WTO is a rule-based organization. If we want to win back people’s confidence in this organization, the most fundamental thing is to treat existing rules and implement promised commitments, with respect and awe. To make existing S&DT provisions “more precise, effective and operational” is the clear commitment and unfinished mission of all members, which is also the most urgent task in the area of development. I call upon all members to show our sincerity by meaningfully engaging in the discussion of the G90 proposal and carefully responding to practical concerns of developing members, rather than wasting time and resources on no outcome debates.

Mr. Chairman, since China was mentioned specifically, I would like to make a comment to respond. China standing against to the differentiation of developing members does not mean we want to enjoy the same favorable treatment as small economies and LDCs. What we want is only to safeguard our institutional right of S&DT.

In practice, according to our accession agreement, China has 14 specific S&DT provisions among all 155 articles, accounting only for 9%. Among the 14, 6 provisions are traditionally “obligations” of the developed members, such as providing translations of documents in WTO official languages upon request, only 8 provisions are so called meaningful “rights”, such as relatively higher tariffs for certain goods.

Even in such circumstances, China always shows restraint in invoking S&DT provisions. Obviously, China did not request to have the same S&DT as Benin, Liberia, Kenya or Pakistan, which was proclaimed by the United States. On the contrary, as a large trading nation, we recognize the responsibility China should bear. Our approach is to address different issues according to their specific situations and make contributions within our capability. As we did in the ITA expansion negotiations, China is the largest contributor among all the participants. We will continue to do that in the future.

Thank you, Mr. Chairman.

Debate on Market-Oriented Conditions

Ambassador Shea’s Statement

The United States, Brazil, and Japan have requested this agenda item to continue addressing the importance of market-oriented conditions to the global trading system.

As a result of our work together, Brazil, Japan, and the United States have released a joint statement (WT/GC/W/803/REV.1). The statement reflects the importance we attach to market-oriented conditions for the world trading system and further elaborates the draft General Council decision circulated earlier this year.

The joint Brazil-Japan-U.S. statement reflects our shared belief in the core principles of the WTO, to include that market-oriented conditions are fundamental to a free, fair, and mutually advantageous world trading system.

We affirm a number of criteria that reflect the market-oriented conditions and disciplines to which our own enterprises are subject.

And, we affirm that all Members’ enterprises should operate under these conditions to ensure a level playing field for our citizens, workers, and businesses.

When Brazil and the United States first introduced the joint statement in July, we invited the support and engagement of Members who wish to become co-sponsors.

We are pleased to report that, since that time, we have been able to hold consultations with a number of supportive Members. We were also pleased to welcome Japan’s decision to become a co-sponsor of the joint statement, and we are thankful for their efforts to engage with other Members on this important matter. The views that we have heard in small group discussions confirm that the joint statement reflects our shared values as WTO Members.

We will continue to invite supportive Members to participate in one of our small groups as the discussions intensify.

We see this discussion as necessary in the context of achieving meaningful WTO reform. To achieve such reform, WTO Members must continue moving toward – and not away from – more open, market-oriented policies and conditions.

But as was made clear in recent G20 discussions, and reflected in the Riyadh Initiative Annex to the Trade Ministers’ Communique, not all WTO Members agree that “market-oriented policies” is a principle of the WTO.

One Member in particular could not reaffirm the principles of the Marrakesh Declaration or even bring itself to reference the Declaration, and went on to dispute that its accession commitments tied it to any market-oriented policies.

The usefulness of the recent G20 exercise was to clearly articulate this division in the Membership, and that some do not agree with the core values of the institution. This crystalizes for us the importance of reaffirming those core values.

The Brazil-Japan-U.S. joint statement recalls that the WTO was established to promote Member economies’ participation in a world trading system “based on open, market-oriented policies and the commitments set out in the Uruguay Round Agreements and Decisions”.

The market-based reforms that GATT parties and acceding Members undertook during that process helped to ensure that their participation was indeed based on open, market-oriented conditions. These Members’ reform efforts demonstrated their commitment to an international trading system that depends on the operation of market-oriented conditions in each of our economies.

Ensuring that market-oriented conditions exist for market participants is critical to realizing the benefits of the international trading system that come from our mutual commitment to these rules. This common foundation is necessary to ensure a level playing field for all Members.

Some Members have argued that our efforts to affirm the importance of market-oriented conditions are a pretext for questioning Members’ choice of different economic models. They argue that the WTO provides no basis for discussing those choices.

However, that is not the discussion we are proposing to have, and these Members may have misunderstood our purpose. What we have argued is that market-oriented conditions provide a level playing field and therefore are necessary conditions for fair trade. And, we have not heard any Member argue for a different position. Do any Members really believe that fair trade can result when special advantages are given to domestic entities under these conditions?

Take, for example, the joint statement elements on financing and investment. Where a Member’s economic conditions generally ensure market-determined financing and investment decisions, it would mean that receipt of state-directed or politically-directed financing confers an unfair advantage. This is not a question of debating different economic models, but rather reflects a shared understanding of fair play.

To this end, the Brazil-Japan-U.S. joint statement affirms that Members’ enterprises should operate under market-oriented conditions and notes the elements that indicate and ensure those conditions for market participants. We encourage Members to review these elements in detail as our discussions advance.

As we see it, the continued relevance of the WTO will depend on whether it can deliver on the promises of a world trading system based on open, market-oriented policies. The success of our reform efforts will depend on our ability to ensure the fundamental premise of free, fair, and mutually advantageous trade remains intact.

Ambassador Zhang Xiangchen’s Statement

Thank you, Mr. Chairman,

It is true that the multilateral trading system is built on the basis of market economy, and all the WTO rules reflect the prevailing practices of market economy and are binding on all Members. There is also no doubt that in the past 40 years, China persistently deepens its reform and opening up to the world in the direction of market economy, which is exactly the basis of our accession to the WTO and the reason for our firm support for the multilateral trading system.

However, the challenge we are facing is not what Marrakesh Declaration says, but what some Members are doing. By the way, with regard to Marrakesh Declaration, when we talk about open and market-oriented policies, we should not forget Article 5, which I quote “Ministers recall that the results of the negotiations embody provisions conferring differential and more favorable treatment for developing economies, including special attention to the particular situation of least-developed countries”. Those words are equally important. Unfortunately, now some Members have selective amnesia.

I have no intention to repeat what I have said at the previous meeting that “common sense issues like market orientation do not need to be discussed at the General Council”, and simply dismiss the whole discussion. Albert Einstein, a scientist who had worked in Bern, once said, “Success is equal to hard work plus correct method plus less empty talk”. Chinese people have also believed in “empty talks harm the country” since ancient times. So, my questions are: what is the purpose of this proposal? what are the follow-up measures to be taken in the next step? What puzzles me even more is that, at this moment, if we cannot prevent a Member’s government from forcing foreign companies to sell their equities and technology to its national companies in any way, how can we sit here comfortably and discuss and tell the world what the market orientated conditions are?

Mr. Chairman, we need to bear in mind that for more than three years, we have failed to take effective actions to stop unilateralist and protectionist measures that undermine the market rules from raging around the world, and this organization we work for has been widely criticized for falling short of such actions. We should feel ashamed. However, at least, we could still argue that it is not because we do not want to, but because we are not capable enough. But now, why should we talk empty about the market-oriented conditions to give more reasons for the international community to laugh at us, for being not only incapable, but also naive?

When a principle or a system is broken, what we should do is to take concrete actions to try to fix it rather than verbally repeating the importance and correctness of the rules to show the innocence of someone who broke the rules.

Ambassador Shea once said that “when the state puts its thumb – or even its fist – on the scale to distort competition and drive preferred outcomes to benefit certain domestic actors, that is unfair.” I couldn’t agree with him more about that. But it is a common sense that if you ask others to do something, you should do it first.

Let me give you some specific examples. When a country, on the grounds of national security, arbitrarily and frequently imposes tariffs on foreign goods or deprives foreign services of market access, that is unfair. When a country uses tariffs as a leverage to force its trading partners to concede in trade negotiations, the market is distorted. When a country blatantly violates fundamental trade rules and at the same time blocks the independent and neutral adjudications, the level playing field is gone. Instead of chanting the empty slogan of “market-oriented conditions”, it’s better for us to take concrete actions to address the above wrongful practices which undermine the fair competition and market-oriented conditions.

Thank you, Mr. Chairman.