Long Way to Fair Trade

Although three quarters of World Trade Organization’s (WTO) members are developing countries, it has frequently been argued that they are not fairly represented and have often been marginalised in the multilateral system. I argue that although WTO has been improving its system to better represent the interests of developing countries, its reforms are not enough and it needs to do more.

WTO and its advocates claim that the institution puts great emphasis on developing countries, especially after the collapse of the Seattle Round in 1999. In their argument, they present four major arguments on how WTO has levelled the playing field for developing countries.

They claim that some of the obligations from the Uruguay Round have been reduced and some were even eliminated for developing countries as a means of differential treatment. They also refer to Part IV of the General Agreements on Tariffs & Trade (GATT), where it explicitly states that the principle of non-reciprocity should be considered when a developed country negotiates trade terms and conditions with a developing one.

It is also argued that developing countries are allowed to take extra time, relative to industrialised countries, when espousing certain commitments of the trade round resolutions. Not least, developed countries are advised to safeguard developing countries’ interests by removing non-tariff barriers and refraining from dumping their products.

Beyond the arguments above, it is practically observed that WTO offers export promotion support and technical assistance to developing countries. Such assistance includes capacity building, information sharing and legal representation.

There are around 100 training and technical cooperation activities annually at the WTO that are targeted to representatives and officials of developing countries. WTO also updates developing countries on progress and new developments by sharing timely information. In addition, through its Training & Technical Cooperation Institute (TTCI), developing countries can access a legal team that advises them on cases and assists them in dispute settlement procedures.

It is pleasantly accepted that most of the measures taken by WTO so far have positive effects on developing countries.

But is this enough?

Definitely not and here is why.

The declarations of non-reciprocity and extra safeguarding measures towards developing countries are mere recommendations that are subject to the will and discretion of industrialised nations. They are not binding and therefore cannot be enforced in case of a breach.

Industrialised nations still continue to pressure developing countries to quickly embrace WTO obligations. They hypocritically push poorer countries to improve their intellectual property and investment policy regimes; while they dishonor their own commitments of eliminating distortions to agricultural and textile trade. The US and European Union both have for long, adopted tariff escalations to protect their agriculture and textile producers.

For instance, in the Bali Package of 2013, the US was strongly opposed to India’s public stockholding programme aimed for food security purposes. Ironically, in 2012, US’ spending for domestic food aid to 80 million beneficiaries was 10 times bigger than India’s expenditure for 475 million people in the same year.

Developing countries are not fairly represented in the Dispute Settlement Unit. To understand why, one needs to carefully look at: the contemporary economic and political dependence of developing countries; their fear of retaliation by developed nations; the prohibitive financial costs and manpower requirements of legal proceedings; and most importantly their ability to enforce panel decisions.

Even though a small country can litigate a large country at the International Arbitration Panel, such actions come with a great risk of retaliation from the large country. For example, such fear was evident in the Brazil vs. US cotton subsidy case. The three cotton producing African countries of West Africa – Mali, Benin, and Burkina Faso refrained from joining Brazil in the case, fearing potential retaliation from Washington.

The damage inflicted by the US cotton subsidy of 3.9 billion dollars in 1999 and 2000, an amount that exceeds the Gross National Income (GNI) of the three countries, was acute. However, these small West African nations considered taking on the US, as skating on thin ice.

They feared the US might withdraw its aid and special bilateral concessions as a result. As a large and emerging economic powerhouse of South America, Brazil did not share the same fear and was able to win an award of 300 million dollars in 2014.

Costs associated with the dispute settlement process are impediments as important as fear of retaliation. Developing countries usually lack the financial and human resources to bring up their complaint to the arbitration panel.

Most of them do not have well educated legal personnel who know the WTO core rules and litigation procedures. Costs associated with hiring legal experts, collecting, and documenting information are exorbitant.

Although WTO’s Advisory Law Centre (ALC) has a pool of legal experts who serve developing countries either for free or for a small fee, the level of help these experts provide over the years is deemed unsatisfactory. Shortage of legal experts at the ALC and the shallowness of their advisory services were raised as the two main reasons.

In addition, industrial nations have a wide advantage over amicus curiae briefs, as they have well developed research institutions and academicians. On top of that, such additional briefs are financed by multinational corporations which have a vested interest in the case and which, by and large, exist in developed nations.

Lack of an enforcement mechanism at the WTO is also a major problem for developing countries. In the current system, when the appellate body rules against the offending country, it cannot force it to remove its breach of obligation. Rather, it allows the complainant (a developing country in this case) to take countervailing measures to compensate for the damage caused by the offender. This measure is usually futile because a developed country can easily absorb the impact of a countervailing measure and because it might even backfire on the developing country’s own industries.

The Ecuador vs. US banana case of 1993 is a good example of this. Following the ruling of the appellate panel, Ecuador laid countervailing measures against US products but the US took twice more than the time required to remove its trade bias, as the impact of Ecuador’s retaliation was insignificant.

In a nutshell, WTO has a long way to go in making sure that developing countries are fairly represented in the international trading system. It should especially improve on: ensuring market access for products of developing countries, a level playing field in negotiations and dispute settlements, and protection against large country retaliation, among many others.

By Ashenafi Sileshi
A consultant at Veritas Consulting Plc. He has a Master's Degree in International and Development Economics, and a Bachelor's in Economics. He can be contacted at ashenafi.sileshi@gmail.com.

Published on Nov 09,2015 [ Vol 16 ,No 810]



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