1 Special & Differential Treatment A perspective from the Caribbean Nigel Durrant Caribbean Regional Negotiating Machinery (CRNM) The Multilateral System The GATT/WTO has never been a developmental institution and maybe will never be. It was founded on the principle of giving greater advantage to those who already have advantages in certain areas of production and export and makes the assumption that all boats are lifted on the wave of trade liberalization. While there are many theoretical arguments supporting this view, the reality is that there are net winners and losers in the game. The concept of special and differential treatment is therefore meant to respond to that reality.
2 History of S&D S&D arose within the multilateral system from the early days of the GATT. In many ways, much more progress was made in developing S&D provisions when the participation of developing countries was much lower than has been the case in more recent years when developing countries begun to dominate the membership of the WTO. (Among the 23 founding members of the GATT, 11 were developing countries while currently, more than 100 of the 136 members are developing countries.) History of S&D The early 1960s, for example, saw the creation of provisions that would lead to the Generalized Scheme of Preferences while, in 1979, the Enabling Clause was established, which provided for the nonreciprocal granting of preferences by developed to developing countries, and provisions for south-south integration arrangements that were less stringent than those mandated by Article XXIV.
3 History of S&D What then accounted for the diminution of progress in S&D? change in the prevailing development ethic within the developed countries and multilateral funding institutions. This shift had to do with the promotion of open markets as the driving force for development as opposed to the emphasis on targeted interventions in human services and infrastructure. Donor fatigue had already begun to set in and alternatives were being sought for some of the failed development programmes. This change of development ethic was expressed though the emphasis on structural adjustment programmes and conditionalities attached to development funding. Indeed, much of the market reforms within developing countries took place independently of the GATT and was at the behest of the multilateral funding institutions. History of S&D In addition, there is now the view on the part of developed countries that certain developing countries are no longer deserving of S&D and should therefore be willing to make greater concessions than others. During the current round, there have been repeated calls, from the EU and US in particular, for advanced developing countries to take on greater obligations, in terms of reciprocity towards developed country imports, and opening up of their markets to the LDCs.
4 History of S&D Some regard the Uruguay Round as having marked the downgrading of S&D and this is in many respects true. While many of the early exceptions provided for developing countries made it clear that they should not be expected to provide reciprocity to developed countries, the Uruguay Round clawed back many of those concessions and imposed on developing countries several obligations meant to bring about eventual full reciprocity. The place of the Caribbean in the Multilateral Trading System Most member countries of the Caribbean Community became contracting parties to the GATT in the 1970s following their independence from Britain a process that commenced in the early 1960s. Their economic history is one of dependence on the colonial power for the sale of agricultural commodities (at one stage in their history all but a few depended primarily on the export of sugar to Britain) but more recent economic trends have been somewhat more diverse. Many are now primarily dependent on tourism and financial services, one is a significant oil producer (Trinidad & Tobago), and bauxite/alumina production is significant to some (Jamaica, Guyana and Suriname). Services are dominated by tourism although there have been some newer developments such as in off-shore educational facilities. While most are classified as middle-income economies, on the whole, CARICOM economies are very fragile and vulnerable to external developments.
5 The place of the Caribbean in the Multilateral Trading System Both of the main agricultural export products on which these countries depend (sugar and bananas) are facing severe challenges in the world market. In the case of sugar, global overproduction and impending policy changes in the European market portend a disorderly exit from the industry and severe social disruptions even for the most efficient producers such as Guyana and Belize. In the case of bananas, the series of WTO dispute challenges launched since the early 1990s by the US and Latin American exporters to the EU import regime has resulted in severe decline in the profitability of the industry CARICOM producers with the smallest and most dependent (e.g. Dominica) being the most affected. In both cases, the position of the Caribbean will be further compounded by the grant by the EU of unrestricted access by the Least Developed Countries from mid-2009 onwards. The place of the Caribbean in the Multilateral Trading System Preferential trade therefore continues to be of major importance to most CARICOM countries and this factor greatly informs their positions at the multilateral levels, and even extends to the FTAA. There has been much debate on preferences in recent years, often in the context of the erosion of non-discrimination, which is regarded by some commentators as a wholly negative phenomenon. The recent Sutherland report on the future of the WTO largely condemns preferences (and S&D as a whole) while not paying much attention to the peculiarities of preference-dependent countries and the paucity of options open to them. CARICOM countries are not convinced that the world has heard their voices have been heard in respect of their vulnerability, their marginal status in the world economy and their inability to respond to trade incentives without the necessary cushioning of meaningful S&D provisions.
6 The place of the Caribbean in the Multilateral Trading System Some commentators (including many in the multilateral and regional institutions) are of the view that preferences should be replaced by development aid and technical assistance. There are several problems with this view. The biggest problem has to do with the mechanisms though which this assistance would be delivered, and the extent to which it would represent an additionality of resources. As mentioned above, the WTO is not a development institution and, while many developed countries have been in the forefront of attempting to bring into the WTO many trade-related and non-traderelated issues (such as investment, labour and the environment) they have shown no willingness to have any commitments on development assistance bound the WTO. The place of the Caribbean in the Multilateral Trading System Without exception, the GATT/WTO provisions on development assistance are best endeavour and constitute meaningless appeals to the better nature of the wealthy. The WTO therefore cannot be relied upon to deliver what, in the first place, it was not set up to do and, in the second place, what its major members have shown no willingness to provide. Secondly, donor governments and institutions are quick to reallocate resources in the face of new demands. Unless there is a recognition that trade liberalization (whether on the multilateral or bilateral levels) necessarily involves new adjustment costs for the country involved, then CARICOM countries would be unwilling to forego the benefits of preferences for the uncertain promise of additional developmental assistance.
7 PTAs between Developed and Developing Countries CARICOM countries as well as the Dominican Republic, in addition to being involved in the WTO negotiations, are involved in FTAA and the Economic Partnership Agreement negotiations with the European Union. There are, in addition, several bilateral negotiations which are either underway or are being contemplated. The additional strain that this places on administrative and technical resources is significant but the main issue of concern here is the extent to which the GATT/WTO rules provide them with sufficient flexibility to achieve their developmental objectives while being called upon to engage in additional market opening. PTAs between Developed and Developing Countries As mentioned above, the element of the Enabling Clause on free trade areas and customs unions among developing countries is one of the most significant S&D provisions of the GATT/WTO since they allow developing countries to choose the pace of integration among themselves. However, neither the Enabling Clause nor Article XXIV ever envisaged the formation of reciprocal free trade arrangements between developed and developing countries, at least not involving countries of such vastly differing sizes and levels of development. Both the FTAA and the Caribbean/EU Economic Partnership Agreement will have to be notified under Article XXIV. CARICOM has therefore had to fight hard to gain acceptance of its view that, in such negotiations, there should be explicit recognition of the need for S&D in the making of concessions by small economies.
8 PTAs between Developed and Developing Countries In the FTAA negotiations (which were due to be concluded at the end of 2005 but which have been stalled for some time), CARICOM has been the leader in promoting the concept of smaller economies as a group having special characteristics and in need of a special dispensation within the proposed agreement. While there has been the creation of a consultative group (not a negotiating group) on smaller economies and numerous proposals within the negotiating groups, there has been no success so far in obtaining broad consensus on any specific proposal. PTAs between Developed and Developing Countries CARICOM did gain a significant concession in relation to tariff reduction/elimination modalities it was allowed to use its WTO bound tariffs, instead of its applied tariffs, as the basis for tariff reduction for a limited list of agricultural products. This had started off as a proposal on behalf of smaller economies but, significantly, the final decision was confined to CARICOM. The debate over the issue (which was protracted and characterized by much rancour) revealed the extent to which the developed countries of the hemisphere (but also others) are reluctant to recognize any specific class of countries as deserving of special treatment.
9 PTAs between Developed and Developing Countries It is also significant that recent bilateral negotiations between the US and Central America/Dominican Republic (CAFTA), as well as others, have not contained any explicit recognition of differences and size and levels of development. There have, however, been certain asymmetries negotiated, for example, in relation to timeframes for tariff reduction/elimination. PTAs between Developed and Developing Countries In their negotiations with the EU (which are due to conclude at the end of 2007), the Caribbean has also called for flexible, asymmetrical treatment that goes beyond a narrow interpretation of Article XXIV, especially in respect of the substantially all trade and reasonable timeframe provisions on tariff elimination. The European Commission has held to the position that, while they would be willing to allow greater levels of non-reciprocity to the Least Developed Countries (only one CARICOM country is a UN-designated LDC), tariff elimination must take place within a span of 10-12 years, and that the coverage of substantially all trade should be interpreted to mean 90%. In contrast, the UK government in a recent communication has proposed that all ACP groups should be unconditionally given a 20 year period for market opening; that the EU should make an upfront offer of complete duty-free and quota-free market access for each regional group; and that there should be an effective safeguard mechanism to be used by ACP groups in the face of surges of subsidized imports from the EU. In addition, the EU should propose within the WTO that GATT Article XXIV be reviewed in order to reduce the requirements for reciprocity and increase the focus on development priorities. The European Commission has up to now stoutly resisted any dilution of Article XXIV.
10 PTAs between Developed and Developing Countries CARICOM also places emphasis on differentiated treatment for its own Less Developed Countries (the smaller island members of the Organization of Eastern Caribbean States and Haiti) in bilateral negotiations. This has been expressed in existing FTAs with the Dominican Republic, Cuba and Costa Rica through the nonrequirement for reciprocity on the part of CARICOM LDCs. While such arrangements can be accommodated under the Enabling Clause, it is not clear that this would be the case under Article XXIV. It is therefore important either that Article XXIV is reviewed, or that an understanding is reached in the WTO on the modulation of obligations for developing countries where these countries establish free trade areas or customs unions with developed countries. PTAs between Developed and Developing Countries It should however be noted that resistance to any meaningful review of Article XXIV is great. This clearly has to do with the fact that most WTO members are part of one or other FTA or customs union, are satisfied with retaining the relatively weak disciplines of Article XXIV, and do not wish to have their own arrangements challenged. Thus, while the Doha Declaration (para 29) calls for negotiations aimed at clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements and taking into account the developmental aspects of regional trade agreements it is not clear that these talks will bear much fruit.
11 Preferences The preferences enjoyed by the African, Caribbean and Pacific (ACP) states into the EU market, as well as those provided by the US and Canada to the Caribbean, all operate under waivers from the GATT Article I (most favoured nation) provisions. The Caribbean and other ACP regions have benefited greatly from the arrangements with the EU, particularly in respect of certain agricultural exports (sugar, bananas, rice, and beef in the case of Southern African countries) and the loss of these preferences would mean severe disruptions to both the rural and urban economies of these countries. Not coincidentally, these products are also the ones on which the EU maintains high levels of protection. Preferences The value of preferences can of course be diminished by multilateral negotiations but also by bilateral agreements and autonomous policy changes by the preferencegiving countries. The July Framework on agriculture recognizes the issue of preference erosion and the importance of longstanding preferences. It also refers members to the Harbinson text on that subject in which it was proposed that, where such preferences exist, the preferencegranting developed counties should be able to make lesser and delayed MFN tariff reductions on the products concerned.
12 Preferences There are also suggestions on the criteria for determining these products, basically, that they should constitute a certain minimum proportion of total merchandise exports of any of the countries concerned. Discussions on preferences are also taking place in the NAMA negotiations with uncertain results. In both agriculture and NAMA, progress in this area will depend on the willingness of both developed and developing countries to accommodate preference-receiving countries by allowing preference-providing countries the necessary flexibility in tariff reductions. While in agriculture, the concept of sensitive products would be the natural vehicle for limiting preference erosion, in NAMA the position is not as clear. Differentiation and Small Economies There continue to be advocates for the creation of a new category of small economies and it has been argued that further progress in the reform process would be extremely difficult if the reality of countries disadvantaged by size as well as numerous other vulnerabilities is not explicitly recognized in the WTO. The converse of this would be the recognition of a new category of advanced developing countries, something that has been advocated by the EU and the US. It will be recalled that, in the run-up to the Cancun ministerial, the EU and US had proposed in their agriculture framework that some developing countries should be willing to assume greater obligations than others, which produced a strong negative reaction from Brazil and other countries that saw the proposal as being targeted at them. Prior to July 2004, the EU also proposed a round for free (i.e. no requirement to reduce tariffs) for the G90 (ACP, AU and LDCs). This proposal did not materialize, partly because of the failure of the EU to fully promote it but also, in the view of some, because the LDCs themselves regarded it as having the potential to dilute their own position.
13 Differentiation and Small Economies The debate will no doubt continue in various forms but the important thing for small economies is not so much the method but the meaningfulness of any mechanism aimed at providing them with the necessary flexibility. The Doha Declaration (para 35) provides for a work programme, under the auspices of the General Council, to examine issues relating to the trade of small economies. But it also states that the objective is not to create a new subcategory of WTO members. This is obviously an issue of major concern to Caribbean economies. Differentiation and Small Economies Progress made on the subject in the Committee on Trade & Development has been uneven but there have been some recent developments that are giving some comfort to the demandeurs. According to reports, there is now a significant group of small economies (Caribbean, Pacific, Central America/CACM, Bolivia and Paraguay about 20 countries) speaking to the problems of small size and of being left behind in the world integration process. A flexible characteristics-based approach to the identification of small economies is being proposed, which would circumvent the problem of creating a new sub-category of members. This means that it may be possible, on the basis of any particular set of criteria, to craft S&D provisions for the countries falling into that category and that the composition of the group would vary according to the issue being negotiated. This would not be a new departure for the WTO since it has been used in at least one case -- the exemption of countries with per capita income of less than US$1,000 from the prohibition on export subsidies (Annex VII of the Agreement on Subsidies & Countervailing Measures).
14 S&D in Agriculture the case of SP and SSM The developments in relation to the Special Products (SP) and a Special Safeguard Mechanism (SSM) in the agriculture negotiations are illustrative of the difficulties faced in obtaining meaningful S&D. Both concepts have their origin the Development Box proposals made by a group of developing countries in 2000, the major objectives of which were to ensure that developing countries are given the flexibility to adopt measures aimed at enhancing domestic food production and protecting the livelihoods of the rural poor and small farmers in the face of indiscriminate liberalization. The proposal had basically called for the exemption of key products, particularly food products, from further liberalization these products would be self-selected by the affected countries. Secondly, developing countries should also be allowed to upwardly readjust their tariffs where cheaper imports threaten domestic production. Thirdly, the special agricultural safeguard (SSG) should be opened up to all developing countries (the SSG is only available to countries that tariffied during the Uruguay Round. S&D in Agriculture the case of SP and SSM Since then, a major battle has been fought within the agricultural negotiations and elsewhere over the type and degree of flexibility that should be afforded to developing countries in the market access area. SP/SSM therefore became the rallying cry for a number of developing countries and resulted in the formation of an alliance called the G33, led by Indonesia. CARICOM, as a group, joined the G33 at the Cancún ministerial. Several countries (including some developing countries such as Costa Rica) who consider themselves to be competitive exporters objected to both SP and SSM but were eventually forced to compromise in July of 2004 when it became clear that it would be impossible to conclude the framework without these provisions.
15 S&D in Agriculture the case of SP and SSM The July 2004 framework simply states that a Special Safeguard Mechanism (SSM) will be established for use by developing country Members. (para 42). No further details are given, which means that these will be subject to intense negotiation. On SP, the document says in para 41 that developing countries will be able to designate an appropriate number of products as Special Products, based on criteria of food security, livelihood security and rural development needs and that these products will be eligible for more flexible treatment. The selection criteria and treatment of these products are to be negotiated. S&D in Agriculture the case of SP and SSM Proponents of SSM regard the facility as one aimed at supporting their vulnerable producers. They therefore want a mechanism that covers all agricultural products (including those not produced domestically), where the products are self-selected, which may be triggered by either declines in import prices or surges in import volumes, where both additional duties and quantitative restrictions may be applied as remedies, and which may be used concurrently with other safeguards available under the GATT/WTO. Products should also be identified at the HS 6 digit level.
16 S&D in Agriculture the case of SP and SSM Opponents of SSM, while grudgingly acknowledging that the framework has mandated the creation of the mechanism, argue that it is merely a tool to encourage further liberalization. They insist that it can only apply to a very limited number products, the selection of which must be subject to very strict objective criteria based on food security, vulnerability of producers and other considerations. In general, they would wish to confine SSM to those products which are already bound at low levels or for which deep tariff cuts are negotiated during the current round. Further, the SSM could only be triggered by import volume surges (not declines in prices) and remedies would be confined to additional duties, not quantitative restrictions. Products would have to be identified at the HS 8 digit level (i.e. more highly disaggregated than 6 digits). No concurrent use of SSM and other safeguards would be allowed. Some developing countries, such as Costa Rica and Malaysia, insist that SSM should not be applied to south-south trade. Most of these arguments also apply to SP. S&D in Agriculture the case of SP and SSM It is difficult to see how such huge differences can be bridged simply by engaging in technical discussions, since they are founded on perspectives of the trade and development nexus that are poles apart. The fact is, however, that one group of countries regards SSM as a sort of incentive device for encouraging more liberalization while another regards it as a means of supporting the livelihoods of its producers. Thus, a political stalemate is likely to arise over the entire concept.
17 Conclusions The Caribbean finds itself in a difficult position in the WTO negotiations. On the one hand, it shares with many other developing countries the desire to maintain significant flexibility in relation to tariff reduction (e.g. membership in G33 in agriculture). On the other hand, its dependence on non-generalized preferences, the fact that it already has duty free access to major developed country markets, and its objective of preventing significant preference erosion cause it to part company with those developing countries who want to see deep and rapid tariff reductions in developed country markets. There is difficulty in promoting the concept of a distinct group of smaller economies, which would be eligible for more favourable treatment than other developing countries (i.e. other than the LDCs) Conclusions Further, the problem of preference erosion cannot be solved by further differentiation among developing countries since it is principally a function of the level of MFN tariffs maintained by the preference-granting countries. If solidarity is to be promoted among developing countries, there must be a greater willingness among those who consider themselves to be competitive exporters to accommodate the interests of smaller and more vulnerable countries.