TRADE-RELATED AGENDA, DEVELOPMENT AND EQUITY (T.R.A.D.E.) WORKING PAPERS

This working paper, written by HESHAM YOUSSEF, of the Permanent Mission of Egypt to the United Nations Office and Specialized Agencies at Geneva, was initially commissioned by the South Centre pilot project on WTO. An earlier draft of the text appeared as a communication from Egypt in the WTO (Special and Differential Treatment for Developing Countries in the Multilateral Trading System, WT/GC/W/109, WT/COMTD/49, 5 November 1998). The current text is the result of additional work by the author and has been edited by the South Centre.

The South Centre, with funding support from UNDP, has established a pilot project to monitor and analyse the work of WTO from the perspective of developing countries. Recognizing the limited human and financial resources available to the project, it focuses on selected issues in the WTO identified by a number of developing countries as deserving priority attention. It is hoped that the project will lead to more systematic and longer term activities by the South Centre on WTO issues.

An important objective of the project is to respond, to the extent possible within the limited resources, to the needs of developing country negotiators in the WTO for concise and timely analytical inputs on selected key issues under negotiation in that organization. The publication of analytical cum policy papers under the T.R.A.D.E. working paper series is an attempt to achieve this objective. These working papers will comprise brief analyses of chosen topics from the perspective of developing countries rather than exhaustive treatises on each and every aspect of the issue.

It is hoped that the T.R.A.D.E. working paper series will be found useful by developing country officials involved in WTO discussions and negotiations, in Geneva as well as in the capitals.

The text of these working papers may be reproduced without prior permission. However, clear indication of the South Centre’s copyright is required.

South Centre, June 1999.

One of the major issues in multilateral trade negotiations and in the implementation of multilateral trade rules is the extent to which the rights and obligations of developing countries, on account of their lower levels of development, should differ from those of developed countries and how this should be achieved. The manner in which countries at different levels of development are treated in world trade has been a major, often controversial issue. Special and differential (S&D) treatment, which addresses the requirements and special needs of the weaker member states, is of fundamental importance for the developing countries.

Over the years, first in the framework of the General Agreement on Tariffs and Trade (GATT), and currently in the World Trade Organization (WTO) as the liberalization commitments of developing countries have deepened and the multilateral trade agenda broadened, the issue of S&D treatment has grown in importance. For example, agreements have been concluded in a number of new areas critical for national development, including trade in services, the protection of intellectual property rights and agricultural trade, as a result of which developing countries have assumed important new commitments, as they have in other areas, such as market access, technical barriers to trade, and sanitary and phytosanitary measures.

The experience gained and the challenges faced in the process of implementation of the Uruguay Round so far should contribute to an evolution and improvements in the nature and focus of S&D treatment, taking fully into account the evolving development needs of developing countries, particularly the weakest among them, namely the least-developed countries (LDCs).

At this crucial time, when intense negotiations are set to start in WTO by the year 2000, and when the trade negotiating agenda may be broadened even further, developing countries need to examine whether the S&D provisions in the Uruguay Round Agreements have been implemented in letter and spirit, are adequate to "level" the unequal playing fields between them and the developed countries, are contributing to their national development and are allowing them sufficient options and space to manoeuvre.

They should also examine how their evolving needs and requirements with respect to S&D treatment should be addressed in the future, by the improvement and strengthening of what is already in place in given agreements, and by assuring that any new areas fully take into account and reflect their development needs and situation. In the process, developing countries should share their experience regarding their respective efforts to take advantage of S&D provisions and examine the role that the WTO secretariat, and the United Nations and the United Nations Conference on Trade and Development (UNCTAD) in particular, could play in assisting them to make the best possible use of S&D treatment.

The paper aims to assist developing countries in this process by:

• reviewing various S&D provisions prior to and following the Uruguay Round;
• identifying S&D provisions that have not been implemented, and also those where implementation has been less than adequate;
• identifying the difficulties that prevent developing countries from maximizing the benefits from use and implementation of S&D provisions;
• indicating how S&D provisions can enhance the participation of developing countries in trade negotiations and assist them in implementing their WTO obligations; and
• presenting proposals for the improvement of S&D treatment in the ongoing and future negotiations in the WTO.

In future, developing countries are likely to be in a better position and to have more leverage to press for improvements in S&D treatment, including in future negotiations, due to various factors. They have gained more negotiating experience during the Uruguay Round negotiations. They have also gained practical experience in the course of implementation of Uruguay Round Agreements, both in their domestic policies and through their participation in international trade. Also, developed countries have become increasingly interested in the markets of developing countries, which have grown in relative terms, and they are therefore keen to see the consolidation and furtherance of trade liberalization efforts in developing countries. (This was quite evident in the negotiations that took place after the conclusion of the Uruguay Round in the areas of basic telecommunications, financial services and information technology.) Finally, while developing countries do not normally take a group position on issues in WTO, S&D treatment is a cross-cutting policy matter and an issue where they have common and shared interests and thus have considerable scope to co-operate and press their demands in a co-ordinated manner as a group.

The remainder of this paper is divided into three parts. The first refers briefly to the conceptual and historical background with respect to special and differential treatment. The second part examines the special and differential treatment provisions in various WTO agreements and their implementation since the inception of the WTO. The final, concluding part discusses the issue of how special and differential treatment should be approached as the multilateral trading system continues to evolve.

While the term "special and differential treatment" is of relatively recent origin, the idea is more than half a century old, going back to the initial attempts to cast the foundations of the international trading system at the 1947 Havana Conference. Independent developing countries were relatively few in those days, and still did not represent a major force to be reckoned with on the global scene. Nonetheless, the development concerns and special needs of developing countries figured in the ideas embodied in the Havana Charter and the International Trade Organization (ITO) to which it was supposed to give rise. Among other things, the Charter recognized the importance of international trade in commodities and the need to deal with it in the framework of the new organization.

The ITO, however, was stillborn and many of these intentions remained unfulfilled. In its place, GATT emerged as a provisional tariff agreement, which dealt with only a part of the international trade agenda. Its early reputation as a "rich men’s club" was due to the fact that its priorities and the secretariat and processes were dominated by the North, and the concerns and needs of the emerging developing world were little more than an afterthought and were hardly addressed.

Indeed, the nature of GATT led to mounting criticisms from the developing countries, of which only a relative few were members. These criticisms were expressed primarily within the framework of the United Nations, where developing countries found an appropriate political platform to air their views and demands. In the very early days it was mostly the Latin American countries that articulated the complaints. But these were joined soon by the group of newly independent nations of Asia and Africa, which upon becoming members of the United Nations, sought international understanding and support for their needs to overcome their colonial legacy and achieve their development objectives.

Essentially comprising a facility to negotiate reciprocal tariff cuts, GATT was not geared or ready to respond to developing countries’ needs and demands for a comprehensive trade agenda, or to grant special status and treatment for countries at lower levels of development. GATT was not a trade policy forum and the majority of its members, coming from the North, were not receptive to the political demand that an organic link be forged between trade and development, and that international trade should become a strategic means to be used by the international community to promote development in the developing countries.

In the face of this resistance by developed countries, the developing countries began to jointly advance their common positions on trade and development issues in the United Nations. The first UN Conference on Trade and Development in 1964 brought this into focus, and gave birth to a new trade and development organization, in which their aspirations were embodied and a comprehensive trade and development agenda was established. The first UNCTAD also witnessed the creation of the Group of 77, as a collective instrument of the developing countries to promote their shared development interests. In effect, the process and pressures from the South, which led to the establishment of UNCTAD, were also largely responsible for Part IV being incorporated into GATT Articles. Intended, at least in part, as a response to the political challenge of the new institution, the aim of Part IV was to introduce a development dimension into GATT, thus making it more acceptable to developing countries, by giving legal recognition to their demands for special treatment for countries at lower levels of development and with little or no bargaining power to exercise influence, offer or secure concessions and promote their national goals.

Part IV somewhat assuaged the hesitant, even hostile, attitude of developing countries towards GATT. More importantly, it opened the door for preferential treatment of developing countries in international trade rules, in order to promote their development, and provided some flexibility in relation to the notion of strict reciprocity. These were the foundations that made possible the Generalized System of Preferences (GSP) negotiated within UNCTAD. Part IV also made it easier for developing countries to adopt a number of domestic measures in support of their national development.

The basic thrust of Part IV was to give developing countries a better chance to gain improved access to the Northern markets, which they could hardly do by engaging in quid pro quo bargaining with the industrialized countries via mutual tariff concessions the standard mode of negotiating in GATT.

Part IV notwithstanding, the successive rounds of GATT negotiations to liberalize multilateral trade benefited developing countries only to a limited degree, due to the smaller size of their economies and to their exports being typically concentrated on a limited number of products, in particular primary commodities. They were also handicapped in negotiating reductions of high tariffs in developed countries on products of export interest to them because individually they were usually insignificant suppliers of many of these products, and they were also unable to bring pressure to bear on developed countries through collective action. Moreover, developing countries had little to offer in terms of reciprocal concessions; their imports of crucial intermediate and capital goods carried minimal tariff duties, while high duties had to be imposed on their other imports since this was a relatively simple means of collecting revenues for the government in the absence of a developed tax structure.

The start of the Uruguay Round of negotiations under GATT, some 20 years after Part IV came into being, signaled the beginning of a new phase which introduced some major changes regarding the issue of trade and development, and the status of developing countries in the international trading system. These changes were in part due to the expanding trade agenda under the impulse of the major countries of the North and their TNCs, and also to the changes that had been taking place in the developing countries’ economies. They were also due to the shift towards neoliberalism in the North, which was subsequently bolstered by the profound changes in the global geopolitical situation. The changed policy approach resulted in a major revision and roll-back of the traditional international development agenda, a weakening of collective action by the South, and the erosion of the UN’s role in the economic sphere. With the weakening of the role of the UN, the focus shifted to GATT and eventually to its institutional incarnation (for GATT was only a provisional arrangement and was never formally constituted as an organization) after the Uruguay Round was concluded, namely WTO.

The changing context was of major strategic significance for the developing countries’ situation in various ways:

• The basis for and value of GSP have been eroded as tariffs were reduced on a number of products of interest to developing countries, as a result of the Uruguay Round.
• While Part IV of GATT continued in existence, its philosophy and political foundations had been weakened and its specific provisions were de facto challenged by a number of outcomes of the Uruguay Round.
• The liberalization tide involved developing countries in opening up their markets, with major implications for their national development in view of their inability to compete on equal terms with advanced economies. The opening up of their economies in a number of trade-related fields, which did not involve goods, had potentially serious implications for vital economic and social sectors and for the developing countries’ goal of building up their domestic capacity.
• While tariffs were gradually being reduced as a means of protecting national economies, new non-tariff instruments for achieving protectionist ends, often disguised as concerns for otherwise legitimate objectives, were being introduced by developed countries. These new and often highly sophisticated forms of protectionism place developing countries in a difficult situation, in part because they are the countries most affected and will find it most difficult to adjust, and also because it is hard to challenge the overt intent of these measures, such as protecting consumer health and safety or pursuing environmental goals.

Unlike in the earlier period, when developing countries were mainly concerned with securing improved access to the markets in the North, they now had to face the additional task of having to liberalize and open up their own economies and thus to cope with powerful and often global economic actors from the North. In facing this dual challenge, the developing countries all too often had adequate means neither to penetrate Northern markets, nor to protect their own national space and economies.

It is broadly accepted that the new trade policy regime that has emerged does not adequately take into account the development realities and objectives of developing countries. In response to their needs, special and differential treatment was provided as a concession in various agreements. However, rather than being an ambitious and comprehensive strategy to deal with development challenges, in a number of cases S&D treatment often consists of granting longer transition periods for developing countries to adjust to new trade and trade-related disciplines, periods that seem too short, bearing in mind the situation of most developing countries. In other instances, technical assistance was to be offered to help developing countries to participate in the WTO process and to integrate more easily into the mainstream of the world trading system.

Moreover, some developed countries, in spite of accepting the principle of S&D treatment, have doubted its value in certain areas, tried to narrow its scope, criticized it on theoretical grounds, and, indeed, have exerted pressures on developing countries involved in accession negotiations to forego some of the benefits accorded to developing countries that are already members of WTO.

Yet, special and differential treatment will be required as long as there is a gap between the economic capacities and levels of development of the various WTO members. At present, the gap between developed and developing countries is widening rather than narrowing, and the world trading system of grossly mismatched actors makes a mockery of the notion of "level playing fields". This calls for continuing efforts to strengthen S&D treatment and have it recognized as a vital component of the evolving trade regimes, and a means of turning WTO into a development sensitive and supportive organization, which is engaged with the rest of the UN system in an integrated and comprehensive global effort to overcome the inequities in global development. This is a matter of strategic importance for the nature of the world trading system in the 21^st century and for development prospects in the South.

International trade theory is used to support the pursuit of the liberalization of international trade, on the grounds that it will promote allocative efficiency by exploiting comparative advantage. It is therefore expected to lead to higher levels of production and growth both nationally and internationally. All trading partners are said to benefit, though the theory does not suggest that all will benefit to the same extent.

In the real world, market failure, imperfect competition, underdeveloped infrastructure and different levels of human and technological resources challenge the assumptions of the simple theoretical model and its predictions. Nonetheless, there are numerous benefits to be gained by engaging in international trade. The essential point, however, is that trade is there to serve development and should be liberalized to the extent that it serves development objectives.

Thus, developing countries, although always eager to engage in greater international trade and in multilateral trade negotiations, have been aware that there may well be limits to what they could gain from such negotiations. These concerns have become more acute as a kind of "multilateral trading system" has evolved which, in view of the continuing relative weakness of developing countries due both to their relative underdevelopment and to their fragmented participation, has developed on lines that often operate to their disadvantage.

To begin with, the initiative in pressing for new multilateral trade negotiations has so far come from developed countries, which by definition have certain priorities and objectives in sight. Naturally, their agenda does not necessarily coincide with the key concerns of the South. For example, for many years developing countries clearly had an interest in negotiating tariff reductions and better access for products of export interest to them, but they did not carry sufficient weight to press their case. On the other hand, despite developing country resistance to developed country proposals for negotiations on intellectual property rights, eventually an agreement was negotiated, for instance, during the Uruguay Round, which imposed strict disciplines in this area. But no comparable instruments were negotiated, for instance, to facilitate or encourage the transfer of technology to developing countries.

Another example is the Agreement on Trade-Related Investment Measures (TRIMs). Under this agreement the interests and rights of investors have been addressed but there are no comparable disciplines regarding the obligations of investors. Similarly, liberalization of trade in goods and services has been aggressively pursued by developed countries while restrictions on the movement of natural persons, an issue that is of great interest to many developing countries, are all but ignored.

Hence, the level and coverage of liberalization commitments, and the strength of the rules in some areas, leave much to be desired from the perspective of the developing countries.

It is clear also that the very processes by which negotiations are conducted and concluded work to the disadvantage of developing countries. Many developing countries are at considerable practical disadvantage in participating in WTO processes and negotiations, due to their lack of skilled personnel and the high cost of maintaining an adequate-size-delegation to deal with trade matters.¹ While the difficulties facing developing countries in relation to adequate participation in the activities of international organizations are not limited to the WTO, due to the specific nature of this organization and the legal obligations that bind all members once a decision is made, it is imperative that the international community pay particular attention to facilitating the effective participation of developing countries in multilateral trade negotiations.

This very substantial practical disadvantage adds to the major disparities in bargaining power between developed and developing countries based on differences in economic and political strength. As a consequence, the negotiated results are likely to reflect the interests of the more powerful parties to the bargain.

Implementation of negotiated agreements also presents problems for developing countries. On the one hand, they have substantial practical problems to face in implementing some of their commitments owing to the lower level of development. On the other hand, developed country implementation of several of the Uruguay Round Agreements including those on textiles and clothing, antidumping, agriculture, sanitary and phytosanitary measures, to name but a few has been carried out in a manner that is disadvantageous from the perspective of many developing countries.

Furthermore, the structural weaknesses of most developing countries mean that they are unable to use the dispute settlement procedures to full effect, being limited in their capacity to defend themselves, to bring disputes before the dispute settlement mechanism, and, indeed, the possibility of using and to pursue retaliation against a non-complying party, or parties especially if they happen to be major trading powers from the North.

As noted, the basic approach underlying multilateral trade negotiations -- that of granting reciprocal concessions -- though seemingly rational, poses considerable difficulties for developing countries and places them at a disadvantage in the process of negotiations. Reciprocity thus raises a key issue, that of whether developing countries should make the same concessions as developed countries and be subjected to the same rules. This has become a question of growing importance in view of the fact that developed countries increasingly press for negotiations on matters that are only indirectly related to cross-border flows of trade and hence impinge on domestic policy in numerous areas. If developing countries are to compete on the same (de facto highly unequal) terms (ironically called "level playing fields") with the most powerful and highly competitive economies, the gains from trade are likely to be particularly skewed, and risks or losses for national economies in the South pronounced.

Thus in multilateral agreements on trade and trade-related matters, from the point of view of the development of the South, the starting premise should be that special and differential treatment must be extended to developing countries, based on their particular economic circumstances and needs. The condition of underdevelopment makes it essential that developing countries have more flexibility and discretion in the use of policies in order to develop and diversify their productive capacity and ability to export, with a view to enhancing their overall economic growth and development.

While the principle of special and differential treatment for developing countries has been accepted and a number of related steps taken, trade and trade-related negotiations still seem to start from the premise that the same rules should apply to all, and only through the bargaining process will special and differential treatment be accorded to developing countries.

For developing countries, S&D treatment is now regarded as essential if they are to participate in and accept the additional obligations resulting from multilateral trade negotiations. In the absence of S&D treatment, many developing countries would find it extremely difficult to accept strict disciplines and higher liberalization commitments or be willing to join new negotiations. S&D treatment should give them more flexibility and discretion in the use of public policies to enhance their prospects for industrialization, diversification of production and exports, export promotion and overall growth and development. Crucially, S&D treatment also provides a means through which developed countries could offer enhanced trading opportunities to developing countries.

In some cases S&D treatment is used to compensate developing countries for perceived shortcomings in other negotiated agreements. Ideally, shortcomings should be addressed directly in the agreement itself, but this may not be possible or easily achievable in practice. However, since the results of negotiations are usually reached in compromises and packages, the shortcomings in some areas may be compensated in others -- as, for example, when some sectors of major export interest to developing countries are dealt with unfairly, as in the case of agriculture, or are not even subject to strict multilateral disciplines, or harbour high tariffs in terms of tariff escalation and/or tariff peaks on products of special interest to developing countries.

Thus, for developing countries, S&D treatment constitutes an integral part of the balance of rights and obligations of the Uruguay Round Agreements as a whole. They accepted the obligations in the expectation that some of their concerns would be addressed and dealt with through S&D provisions.

As already noted, a few developed countries have raised questions about the extent to which developing countries need S&D treatment in certain areas and also whether some S&D provisions compromise the achievement of other benefits from trade liberalization. This leads to continuing attempts by these countries to narrow the scope of S&D treatment in various areas.

The lack of sympathy for wide-ranging S&D treatment by these developed countries is also manifested by the increasing pressure they exert on developing countries involved in accession negotiations. As a price for accession to the WTO, they are pressed to accept relatively high levels of obligations and to give up the right to benefit from some of the S&D provisions accorded to existing WTO members. Some developing countries that have recently acceded to WTO have succumbed to this pressure.

If this trend continues, there will be varying levels of obligations among developing countries, with recently acceding countries having higher levels of obligations. When new reviews and negotiations take place, these same developed countries may well exert pressure on those developing countries benefiting from better S&D treatment to accept stricter disciplines and a de facto roll-back of what was already achieved. These efforts may gain support, at least indirectly, from the developing countries that have been forced to accept higher levels of obligations in accession negotiations. This is an important systemic issue that should be addressed by all developing countries -- whether they are long standing WTO members, newly acceding members or negotiating to accede to WTO, since this trend can negatively affect their economic prospects and present situation in WTO, and the overall coherence of the WTO agreements.

This demands that continuing and additional efforts be undertaken to strengthen S&D treatment and to make it a properly recognized and key in-built part of the WTO process, and of working towards any trade or trade-related agreement in the future.

Since the inception of GATT and until the Tokyo Round there were two main provisions in GATT relating to S&D treatment for developing countries, namely, Article XVIII of GATT entitled "Governmental Assistance to Economic Development", which deals with balance-of-payments (BOP) difficulties, and Part IV of GATT entitled "Trade and Development". In the Tokyo Round, however, a number of the codes that were negotiated contained special provisions for developing countries.²

II.3.1 Article XVIII of GATT: Balance-of-Payments Difficulties³

GATT specified two sets of rules to govern import restrictions for BOP purposes. Article XII entitled "Restrictions to Safeguard the Balance-of Payments" can be invoked by any member while Article XVIII:B can be invoked only by developing countries. The other difference between these two Articles is that Article XVIII:B permits import restrictions to the extent necessary to deal with the ‘threat’ of a serious decline in monetary reserves. Article XII, on the other hand, can be invoked only when the threat is ‘imminent’, and the reserves ‘very low’.

Article XVIII has four sections. Section A permits a developing country to modify or withdraw concessions in order to promote the establishment of a particular industry. Section B permits a developing country facing BOP difficulties to control the general level of its imports by restricting the quantity or value of imports. Sections C and D provide procedures by which a developing country may protect infant industries through measures (usually quantitative restrictions) that are not otherwise consistent with other provisions of the GATT agreement.

Importantly, Article XVIII:B allows developing countries to impose trade restrictions to overcome their BOP problems, taking into account not only the position of the foreign exchange reserves, but also the development needs of the economy.⁴ However, more recently, assessments of the adequacy of foreign exchange reserves are, in practice, being made mainly on the basis of a comparison of the value of reserves with the value of imports during the past few years. The development dimension is being sidelined with the result that the distinction between Article XVIII:B and Article XII is becoming less and less meaningful.

It has been argued that, since BOP problems usually arise from a macro-economic imbalance, quantitative restrictions should be used only in the short term, otherwise they will fail to rectify the BOP difficulties and may compromise long term growth. It is therefore argued that a change in the exchange rate, supported by appropriate macro-economic policies, is a better way of addressing BOP problems. Moreover, in situations where BOP difficulties require immediate remedial action, it is suggested that this should take the form of price-based measures (import surcharges, import deposits, etc.), which generate fewer market distortions than quantitative restrictions.

The problem with these criticisms is that they ignore the fact that markets in developing countries may not be very responsive to price-based measures, so these measures may not provide the necessary signals for efficient resource allocation. Article XVIII, therefore, provided developing countries with a large degree of flexibility in the use of their trade regimes to counter BOP problems. This flexibility, however, was criticized by a number of developed countries, which exerted strong pressures to tighten the procedures and put limitations on the flexibility under Article XVIII.⁵

Restrictions on the use of Article XVIII were made part of the Tokyo Round agreements in 1979 when it was decided that priority should be given to least trade distorting measures. Later on, the new Understanding on Article XVIII that was reached during the Uruguay Round imposed more rigid rules for using quantitative restrictions including a commitment to announce time schedules for removing measures taken for BOP purposes, the requirement to give preference to price-based measures, and, when applying quantitative restrictions, the requirement that justification be provided concerning the reasons why price-based measures were not deemed adequate to deal with the BOP situation. Moreover, even when the use of quantitative restrictions is justified, it must be limited in duration and should restrict imports without any discrimination among various sources.

During the period in which the Uruguay Round negotiations took place, a number of developing countries disinvoked, that is, stopped using, Article XVIII. Similarly, while 12 consultations have been held with developing countries ⁶ after the entry into force of WTO, Egypt, Israel, the Philippines, South Africa and Turkey have disinvoked BOP provisions. Five developing countries are currently subject to BOP consultations. These are Bangladesh, Nigeria, Pakistan, Sri Lanka and Tunisia.

In some cases pressure was exerted by major developed countries on developing countries to disinvoke BOP provisions. This pressure continues to be exerted on Nigeria and Pakistan. In the case of India, the inability to reach an agreement on how to deal with BOP restrictions led the United States to initiate dispute settlement procedures against India. These dispute proceedings are still underway.⁷ The ultimate result will be of considerable importance for developing countries. This is partly because, for the first time, aspects related to the implementation of Article XVIII and its Understanding have been subjected to dispute settlement procedures.

The outcome of the dispute between India and the US may provide developing countries with a clearer view on whether any improvements are required in the manner in which GATT/WTO rules deal with their BOP difficulties. The number of developing countries invoking Article XVIII is not large, but this provision remains as a safeguard mechanism to deal with BOP difficulties and is of great potential importance to all developing countries.

In the past, it was recognized by developed countries that developing countries needed to raise revenue through import duties for financing their economic development. Partly for this reason Article XXVIII bis (3) of GATT did not insist on full reciprocity for the concessions granted by developed to developing countries, that is, developing countries were not required to reduce their tariffs by similar margins to benefit from the tariff concessions granted by developed countries.

In view of the continuing difficulties of developing countries in the field of trade, they pressed for further concessions, which led to proposals in the early 1960s concerning preferential market access to products originating from developing countries. In 1965 this resulted in the addition of Part IV to the Articles of GATT entitled "Trade and Development", adding the following three new Articles to the original 35 Articles:

• Article XXXVI: which recognizes the development needs of developing countries and the importance of improved market access for their products. It also includes a reiteration of the principle of non-reciprocity. Many developing countries had acceded to GATT under terms that allowed them not to bind tariffs at the time of their accession. Article XXXVI confirmed this non-reciprocal flexibility.
• Article XXXVII: which incorporates the commitment by developed countries to take specific measures for the improvement of the export prospects of developing countries in the markets of developed countries.
• Article XXXVIII: which approves the principles and objectives for the granting of preferences to developing country products. These objectives were: increasing export earning of developing countries; promoting their industrialization; and accelerating their economic growth.⁸

It should be noted that the commitment under Article XXXVII referred to above is not enforceable through the dispute settlement process in the sense that no retaliatory action can be undertaken if this commitment is not fulfilled by a developed country.

Part IV of GATT constituted a formal recognition of the concerns of developing countries in negotiating multilateral trade rules. However, its provisions are all but forgotten. Developing countries need to monitor the implementation of these provisions, particularly in view of the new negotiations that will take place by the year 2000. The primary responsibility for trying to achieve the implementation of these provisions falls on developing countries, which should follow up these matters in the appropriate WTO bodies. But it must be noted that developing countries cannot succeed in their efforts unless developed countries are also willing to respect these provisions.

A major part of the Tokyo Round negotiations dealt with codes for dealing with non-tariff measures -- namely antidumping, subsidies and countervailing measures, standards, customs valuation, government procurement and import licensing. Each code provides for some form of S&D treatment for developing countries. These S&D provisions in the Tokyo Round codes were of three kinds:

• dealing with technical assistance to developing countries,
• subjecting developing countries to less strict disciplines, and
• exempting developing countries from some obligations.

Some of these provisions were vague or of an aspirational nature. Article 13 of the antidumping code, for example, asked developed countries to consider more constructive remedies than the imposition of antidumping duties on exports from developing countries.⁹ Other provisions, including some substantive exemptions from commitments for developing countries had binding legal force. Perhaps the most important of these was the provision in the subsidies code that exempted developing countries from the obligation to prohibit export subsidies on non-primary products.

It should be mentioned, however, that, as far as developing countries were concerned, the Tokyo Round Codes were optional and, despite the fact that a number of S&D provisions were included therein, only a few developing countries acceded to them.

One of the fundamental ways in which developing countries are exempted from multilateral disciplines regarding market access is the principle of non-reciprocity in trade negotiations with developed countries concerning tariff reduction or removal of other trade barriers.¹⁰ This principle was recognized in Part IV (Article XXXVI) of GATT.

Another important milestone with respect to this aspect of S&D treatment for developing countries was achieved in 1979, also in the context of the Tokyo Round. This was the agreement on "Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" which is also known as the ‘Enabling Clause’ ¹¹, which reconfirmed the principle of non-reciprocity recognized in Part IV (Article XXXVI) of GATT. This Enabling Clause contains the following main elements:

• It exempts developing countries from the requirements of Article XXIV.¹² Developing countries are thus allowed to exchange trade preferences among themselves without extending this treatment to all members on an MFN basis.¹³
• It provides the legal basis for the continuation of the Generalized System of Preferences (GSP).
• It recognizes that developing countries are expected to take on progressively more obligations as they develop.
• It identifies LDCs as a special group of countries that deserves particular attention and even more favourable treatment than other developing countries.

The seven clauses in the Punta del Este Declaration defining the general principles that were to govern the Uruguay Round negotiations contained four that dealt with developing countries. Three of these confirm that developing countries will be accorded S&D treatment and the fourth asserts that developing countries will participate more fully in the framework of rights and obligations as their economies develop. On the other hand, one of the guiding principles of the Uruguay Round was that of a "single undertaking". This had a fundamental impact on the rights and obligations of developing countries, including S&D treatment. Acceptance of this principle meant that all members, to a large degree, would be subject to the same set of rules.

Over time, an increasing number of developing countries became involved in multilateral negotiations under the GATT. They were also becoming relatively more effective in negotiating. Nevertheless, despite their efforts during the Uruguay Round -- including in the negotiations resulting in the General Agreement on Trade in Services (GATS), the Agreement on Textiles and Clothing (ATC), the Agreement on Agriculture (both as exporters and as net-food-importers), the Agreement on Trade-Related Investment Measures (TRIMs), the Dispute Settlement Understanding (DSU), it can be argued that, from a developing country prospective, more could have been achieved. This is also the case with regard to the S&D treatment provisions, which could also have been better formulated and made more precise. The results of the Uruguay Round reflect, of course, the balance of power and capabilities prevailing during negotiations.

During the Uruguay Round, developing countries were trying to defend their growing trade interests. They faced a number of challenges concerning access for their exports to developed country markets. Among other things, these challenges in developed country markets included increasing discrimination through higher tariffs on products of export interest to developing countries, proliferation of restraints on exports in textiles and clothing, absence of adequate disciplines in agriculture, use of grey area measures (that is, voluntary export restraints and orderly marketing arrangements that were imposed on developing countries bilaterally by major developed countries). At the same time, developing countries wished to achieve S&D provisions that would adequately take into account their development objectives.

However, maintaining the flexibility that developing countries had enjoyed before the Uruguay Round through S&D treatment became increasingly difficult in view of the rising levels of growth in a number of developing countries, the growing gap among developing countries, and the increasing pressure exerted by developed countries for reciprocal obligations and concessions from developing countries. This was facilitated by the rising level of obligations that some developing countries came to accept in reciprocal regional trade agreements.¹⁴

Another issue of great concern to developing countries during the Uruguay Round negotiations was that of the erosion of preferential tariff margins granted to developing country exports under the GSP schemes. Such erosion was an inevitable consequence of the reduction of the overall level of tariffs under the Uruguay Round. Progressive and gradual liberalization is important and beneficial to developing and developed countries. It is not clear whether this concern has led to any gains in dealing with S&D provisions or in negotiations in other areas. The benefits of GSP have declined for other reasons too, including the increased use of non-tariff measures (NTMs) in GSP schemes, additional conditionalities that are imposed by preference-giving countries and the unpredictability of the system.¹⁵ However, today, instead of criticizing the Uruguay Round Agreements for having brought about an erosion in preferences, priority consideration should be given to how to make the best use of the present GSP schemes and how these schemes can be improved in practical ways for the benefit of developing countries.

The above overview provides the context in which the Uruguay Round negotiations took place, particularly as concerns the issue of S&D treatment. The outcome of the Uruguay Round negotiations, in terms of the actual provisions concerning S&D treatment in the various Uruguay Round agreements and their implementation under WTO, is discussed in the next part of this paper.

The preamble of the WTO Agreement recognizes the special needs of developing countries for positive efforts designed to ensure that developing countries secure a share in the growth in international trade commensurate with their economic development needs. Many of the preambles in the Final Act of the Uruguay Round contain similar language. The references to LDCs are more generous. It is stipulated that LDCs will only be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities. However, there are few provisions attempting to translate these broad objectives into concrete action.

On the other hand, it is important to note that there are a number of exceptions in some Uruguay Round agreements that are designed to benefit certain groups of producers in developed countries. This in fact endorses the argument of developing countries regarding special and differential treatment that special circumstances require specific consideration and trade restrictions can be legitimate and appropriate instruments for development purposes. For example, even after the coming into force of the Uruguay Round agreements, developed countries are still allowed to use certain otherwise prohibited instruments in a number of areas. These include flexible use of import restrictions in textiles and clothing until 2005, a high level of domestic support and export subsidies in agriculture, and use of tariff quotas and the special safeguard mechanism to control market access of a number of agricultural products. Furthermore, the Agreement on Agriculture and the Agreement on Subsidies and Countervailing Measures favour developed countries by allowing subsidies that are generally used in these countries (research and development subsidies) while prohibiting the kind of subsidies that might be of particular relevance to developing countries (subsidies used for the development of specific products).

The provisions in the Final Act of the Uruguay Round according S&D treatment to developing countries vary in the legal status as well as in their economic and trade implications.

S&D provisions have been categorized in various ways. They are classified by some as falling into two broad categories: first, exceptions to the overall rules that apply to developed countries in the system; and, second, positive actions in favour of developing countries that are required by developed countries or by WTO and other organizations. Others have categorized S&D provisions by distinguishing between those that are related to the level of development and those that are not.

This paper adopts a more detailed classification of S&D provisions depending on the nature of action required. Using these criteria, the following six types of S&D provisions can be identified:

• Provisions aiming at enhancing trading opportunities for developing countries, including through providing more favourable access to the markets of developed countries.
• Provisions that require developed countries to safeguard the interests of developing countries when adopting certain measures.
• Provisions giving developing countries some flexibility and policy discretion including by granting them more favourable thresholds or exempting them from obligations or disciplines that apply to developed country members.
• Provisions mandating or requesting support measures including financial and technical assistance by developed countries or by WTO or other international organizations.
• Provisions providing for some safeguard-type measures, that is, giving assurance to developing country members that if they face difficulties they will be able to resort to policies and measures that would assist them in addressing these difficulties.
• Provisions granting limited time derogation from the application of rules. These would allow developing countries to derogate from commitments for specific time periods with varying conditions that differ from one agreement to another and may also differ between developing and least developed countries. At the end of these transitional periods, in most cases developing countries will have similar obligations to those of developed countries.

It is however important to note that it is not possible to estimate accurately and compare the costs and benefits of various types of S&D provisions.

Before addressing specific S&D provisions in various WTO agreements and other legal instruments it is necessary to address two issues that are of a cross-cutting nature, are reflected in many WTO agreements and related to S&D treatment. The first is related to increasing trade opportunities (market access) for developing countries, and the second to technical assistance to developing countries.

A number of WTO provisions aim at increasing trade opportunities for developing countries. These include:

• Recognition in the preamble of the Marrakesh Agreement Establishing the WTO of the special needs of developing countries, particularly concerning positive efforts designed to ensure that developing countries secure a share in the growth in international trade commensurate with their economic development needs.
• Provisions that allow developed countries to provide trade preferences to developing countries.
• Article IV:1 of GATS, which aims to increase the participation of developing countries in trade in services through the liberalization of trade in services in sectors and modes of supply of export interest to them.
• Provisions in the Agreement on Textiles and Clothing for more favourable growth rates in quotas for small exporters, new entrants and LDCs.
• Provisions in the Decision on Measures in Favour of LDCs for the consideration of improving preferential treatment for products of export interest to LDCs, as well as the adoption of positive measures that facilitate the expansion of trading opportunities for LDCs.

A number of developing countries, particularly in South-East Asia, have achieved substantial growth through export-led development strategies and increased their share of the value of world merchandise exports from 11.7 per cent to 17.6 per cent in the period 1985-1996. However, many developing countries, particularly in Africa and Latin America, have experienced a declining share in the total value of world merchandise exports over the last decade. For example, in the period between 1985 and 1996, the share of Africa in the value of world merchandise exports declined from 4.2 per cent to 2.3 per cent; the share of Middle East, from 5.3 per cent to 3.2 per cent; and the share of Latin America, from 5.6 per cent to 4.9 per cent.

Despite the progress achieved by a number of developing countries in expanding their manufactured exports, a large number continue to rely on the export of primary products for a substantial part of their foreign exchange earnings and a high proportion of their GNP. In many developing countries, over 75 per cent of export earnings derive from the export of primary commodities. In 1995, the share of primary commodities in exports was 64 per cent for Africa, 49 per cent for Latin America and 15 per cent for Asia as against the world average of around 24 per cent.

As for manufactured products, the share of total exports derived from manufactured products in 1995 was 28 per cent for Africa, 50 per cent for Latin America and 83 per cent for Asia. The world average was around 76 per cent. Reliance on primary commodity exports creates two sets of problems for developing countries: volatility in export earnings due to the volatility in commodity export prices and the prospect of long term deterioration in the terms of trade, which imposes higher economic and social costs on developing countries.

Another related problem is the greater dependence of developing countries, as compared with developed countries, on foreign trade, which contributes a higher proportion to their national incomes. Furthermore, to achieve a higher level of development, most developing countries need to import raw materials, capital goods and intermediate goods. In many cases, these import needs exceed their export revenues and result in chronic trade deficits.

These conditions point to the need for trade liberalization to become a tool that promotes convergence of standards of living and levels of development among developed and developing countries and not an instrument that widens the existing, and in some cases, growing gaps and inequities. This represents a major challenge to the MTS in ensuring both that the current S&D provisions on better market access for developing countries are effectively implemented and that S&D treatment is developed in future in a manner that would adequately take into account the particular difficulties facing developing countries. Developing countries, for their part, should make concerted and joint efforts to ensure that the system addresses these challenges adequately.

Most WTO agreements include provisions for technical and, in some cases, financial assistance to developing countries.¹⁶ The main purpose of such assistance is to help developing countries to develop their trade capacity and meet their WTO obligations.

WTO technical co-operation activities have recently witnessed a number of positive trends. There has been an increase in the level of technical assistance activities and in the financial resources that are available for these activities, as well as an increase in technical assistance in favour of LDCs, which is reflected in a rise in Africa’s share in technical assistance provided by WTO. Technical assistance programmes now cover a wider range of WTO agreements and activities.

In spite of these positive trends, a number of difficulties and concerns in respect of the WTO technical assistance activities for developing countries still remain:

• Only 25 per cent of the technical assistance activities in 1997 were financed through the regular budget. This would render the continued supply of such assistance highly unpredictable.
• A considerable shortfall is expected in the financial outlay for technical assistance in 1999. The financial outlay for technical assistance in 1998 was around 5 million Swiss francs. But, in the absence of additional contributions, technical assistance could be scaled down by around 3 million Swiss francs in 1999.
• There are also concerns about the capacity of the WTO Secretariat to provide the necessary technical assistance to meet the growing demand for such assistance.
• A large part of the technical assistance activities comprises seminars. These are useful in the initial stages of implementation when the main objective is to increase awareness. But the focus should now shift to capacity building in developing countries -- including practical hands-on assistance, advisory missions to assist in the preparation of notifications and legislation and advice in relation to the implementation of various WTO agreements.
• One of the main technical assistance requirements of developing countries is the need to strengthen their negotiating capacity in WTO. However, very limited resources are currently dedicated to achieving this objective, whether through bilateral or multilateral technical assistance.

The evaluation of the availability, effectiveness, adequacy, scope and implementation of technical assistance is an issue that requires careful and detailed consideration. However, it is important to note that the main question that needs to be addressed is the problem of overall adequacy of the technical assistance that is being provided vis-à-vis the growing needs of developing countries and LDCs.

This section outlines some of the most important S&D provisions in various Uruguay Round Agreements and their implementation under WTO. However, it does not cover all the S&D provisions in all the Uruguay Round Agreements.

It is recognized that the dispute settlement system under WTO is more effective and efficient compared with the situation before the Uruguay Round.¹⁷ Moreover, there are a number of S&D provisions in the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). However, the implementation of several of these provisions has proven difficult in practice.

S&D provisions in the DSU include:

• In consultations under the DSU, members should give special attention to the particular problems and interests of developing country members (Article 4.10). There are no clear indications as to how this provision has been implemented.
• If a complaint is brought by a developing country, that developing country may choose to apply certain other alternative procedures (Article 3.12). To date, this provision has not been used by any developing country.
• When a dispute is between a developing and a developed country, the panel will, if the developing country so requests, include at least one panelist from a developing country member (Article 8.10). Out of 20 panels involving disputes that included a developing country, 16 included panelists from a developing country. Of the 4 panels without a panelist from a developing country, 3 were agreed by consensus and one was chosen by the Director-General.
• In the context of consultations involving a measure taken by a developing country, the parties may agree to extend the periods set for the establishment of panels (Article 12.10). To date, this provision has not been used by any developing country.
• Panels shall afford developing countries sufficient time to prepare and present argumentation (Article 12.10). These time periods for submission of material are usually agreed by consensus. However, this provision has been cited but panels have not made any specific rulings in this regard.
• Where one or more of the parties is a developing country, the panel’s report will explicitly indicate the form in which account has been taken of relevant provisions on differential and more favourable treatment for developing countries under the covered agreements (Article 12.11). Panel reports did not indicate how account had been taken of relevant S&D provisions in a systematic manner. However, panels have examined relevant S&D provisions when they were invoked by developing countries in disputes involving cases against them.
• In surveillance of implementation of recommendations and rulings, particular attention should be paid to matters affecting the interests of developing countries with respect to measures that have been subject to dispute settlement (Article 21.2). There are no clear indications as to how this provision has been implemented.
• If the case is brought by a developing country, the Dispute Settlement Body, in considering what appropriate action might be taken, will take into account not only the trade coverage of measures under consideration in the dispute, but also their impact on the economy of the developing country concerned (Article 21.8). To date, no specific action has been taken under this provision.
• At all stages of the determination of the causes of a dispute and of dispute settlement procedures involving a least developed country, particular consideration will be given to their special situation, including the exercise of due restraint by the complaining party, and the offer of good offices, conciliation and mediation by the WTO Director-General or the Chairman of the Dispute Settlement Body (Article 24). To date, no LDC has been involved in a dispute.
• Special assistance and advice will be made available to developing countries in disputes (Article 27.2). Technical assistance is provided to developing countries. However, it is very limited in nature and is not even close to the scope, size and kind of assistance required by developing countries in this respect.

It has to be indicated that, in the time bound dispute settlement process, it was not very clear how a number of these provisions would be implemented in practice, such as giving special attention to the particular problems and interests of developing country members during consultations.

Another source of concern is that resorting to the dispute settlement procedures has proved to be extremely expensive from the perspective of developing countries. Despite the improvements in the dispute settlement system, and the greater involvement of developing countries in it, this system is not as accessible to developing countries as it should be. Bringing a dispute to the WTO is an expensive and legally intensive process requiring specialized expertise that is lacking in most developing countries. There have also been complaints from various developing countries on the difficulties they face in coping with the dispute settlement procedures. Substantial additional assistance should be provided to developing countries in this area. Furthermore, an independent legal body to assist developing countries, legally, substantively and financially to bring their cases to the dispute settlement mechanism would be necessary for them to be able to defend their interests in any dispute.

Under the built-in agenda the review of the DSU began in the spring of 1998 and substantive consideration of the issues involved is underway. In this review, it would be of crucial importance for developing countries to examine how to strengthen the implementation of S&D provisions in the DSU, as well as to address issues related to their difficulties in accessing the dispute settlement process.

The flexibility enjoyed by developing countries in the GATS Agreement is built into the structure of the Agreement itself. GATS deals with the concerns of developing countries by emphasizing the principle of progressive liberalization in line with the development situation and gives individual developing countries the flexibility to open fewer sectors, liberalize fewer transactions and attach conditions to access to achieve their development objectives in the area of trade in services.¹⁸

Furthermore, according to Article IV:1 of GATS, increased participation by developing countries in trade in services is to be facilitated through the liberalization of market access in sectors and modes of supply of export interest to them. This provision stipulates that this objective should also be achieved through the strengthening of the domestic services supply capacity of developing countries, as well as through the improvement of their access to distribution channels and information networks.

The Council for Trade in Services is carrying out an assessment of trade in services with reference to the objectives set out in Article IV:1. It remains to be seen whether the commitments that were made in the Uruguay Round and subsequently have adequately and effectively achieved the objectives of Article IV and, in particular, the increased participation of developing countries in trade in services and the strengthening of the domestic services capacities of developing countries.

A number of concerns have been highlighted. For example, one of the most significant aspects of GATS is that it covers cross-border movement of service suppliers as an integral part of trade in services. While the commitments made by a few developed countries contain provisions for movement of natural persons with commercial presence, there has been no meaningful liberalization in the mode of movement of natural persons without commercial presence. Due to the extremely limited nature of the commitments undertaken, the benefits accruing to developing countries as a result of these commitments are likely to be marginal.

The GATS Agreement requires developed countries to establish special contact points to facilitate the access of service providers from developing countries to information related to their respective markets. Fifty developed countries have notified that they have established the stipulated contact points. It is not clear whether developing countries have been effectively utilizing the potential opportunities that may be provided through the use of information that these contact points may provide. A number of developing countries have already proposed that the WTO Secretariat prepare a paper on the basis of information to be provided by members on the experience of the functioning of these contact points and their benefit to developing countries.

A number of sectors where agreements have been reached since the end of the Uruguay Round, such as financial services and basic telecommunications, are capital-, technology- and knowledge-intensive. Developing countries therefore face constraints in increased participation in international trade in these sectors. To prepare the ground for the next round of negotiations on services, these difficulties should be adequately addressed in the ongoing process in the Council for Trade in Services, as well as both the identification of opportunities and the barriers and restrictions in sectors of particular interest to developing countries.

The TRIPs Agreement has far reaching implications for developing countries, in terms of both access to and cost of technology imports from developed countries and the successful patenting and registering of their technologies internationally.

Articles 65 and 66 of the TRIPs Agreement provide a time limited derogation, allowing developing countries to fulfil their obligations in a phased manner. Despite this transitional period, many developing countries will still find great difficulties in implementing the TRIPs Agreement, due to weak institutional structures, the absence of the required expertise and lack of resources -- financial and otherwise.

The technical and financial assistance to be provided to developing countries in accordance with Article 67 is of particular importance if they are to be able to implement their commitments in this Agreement effectively. Technical and financial assistance therefore merits a separate comprehensive evaluation which, as mentioned earlier, is beyond the scope of this paper.

According to Article 66.2 of the TRIPs Agreement, developed countries are expected to provide incentives to enterprises and institutions in their territories for the purpose of promoting and encouraging technology transfer to least developed countries. No concrete steps have been notified by developed countries to the WTO in this regard. Article 9.1 of the TRIPs Agreement requires Members to comply with the Appendix of the Berne Convention (1971) which contains special provisions for developing countries. These provisions provide developing countries, inter alia, with some flexibility in the area of compulsory licenses for translations and reproductions subject to a number of notification procedures. They are not used extensively. They have been invoked under the TRIPs Agreement by one WTO Member. They are currently used by five countries under the Berne Convention, of which four are WTO Members but still benefiting from the transitional period. However, these provisions may have made the use of translations and reproductions in developing countries more affordable in the area of education. The possibility of using them may encourage publishers to make licensing for translation and reproduction available in developing countries on reasonable conditions.

The preamble to the Agreement on Agriculture clearly states that S&D treatment for developing countries is "an integral element" of the Uruguay Round negotiations. The preamble also recognizes the potential problematic position of LDCs and Net Food Importing Developing Countries (NFIDCs) with regard to their food security.

Developing countries enjoy S&D treatment in the three main components of the Agreement -- namely, market access, domestic support and export subsidies, as well as regarding export restrictions.

The Agreement exempts LDCs from making reduction commitments, i.e. reduction of tariffs, domestic support and export subsidies. This provision was used by all LDCs in the establishment of their schedules. Other developing countries may implement their reduction commitments over a period of 10 years, as compared to the six-year implementation period granted to developed countries. This provision was used by developing countries while submitting their schedules.

There are lower rates of tariff and subsidy reduction for developing countries (other than least developed countries) in measures affecting agriculture, provided that the result is no less than two-thirds of that specified for developed countries. These and the several difficulties identified by the WTO members in the implementation of the Agreement on Agriculture regarding domestic support, export subsidies and market access are outlined below.

• Non-exempt or trade distorting domestic support is to be reduced by a certain percentage from the overall level of such support in the 1986-1988 base period.¹⁹ If a subsidy level is not indicated in the schedule, then no trade distorting subsidy can be provided beyond the de minimis levels. For developing countries, the de minimis percentage under Article 6:4(b) is 10 per cent of the value of production of the product concerned compared with 5 per cent for developed countries, or 10 per cent of total agricultural production in the case of non-product specific de minimis compared with 5 per cent for developed countries.

Developing countries took account of this provision in the establishment of their schedules.²⁰ Of the 42 domestic support notifications received from developing countries relating to the 1995 and 1996 implementation years, seven developing countries made use of the de minimis provision.²¹

• Whether direct or indirect, government measures, to assist agricultural and rural development programmes in developing countries are exempt from reduction commitments in respect of domestic support commitments.

Developing countries took account of the provision in the establishment of their schedules. Of the 42 domestic support notifications received from developing countries relating to the 1995 and 1996 implementation years, 19 developing countries made use of this provision.²²

• Governmental stockholding programmes for food security purposes in developing countries whose operation is transparent and conducted in accordance with officially published objective criteria or guidelines are considered to be in conformity with the Agreement.

Six developing countries notified the use of this provision in the establishment of their schedules.²³

• The provision of foodstuffs at subsidized prices with the objective of meeting the food requirements of the urban and rural poor in developing countries on a regular basis at reasonable prices is considered to be in conformity with the provisions of the Agreement.

Six developing countries notified the use of this provision in the establishment of their schedules.²⁴

The major purpose of these provisions is to bring domestic support to the agricultural sector under multilateral rules and to gradually reduce government spending on trade distorting domestic support. Several problems have been identified with respect to the method of calculation of the current total Aggregate Measure of Support (AMS) and the criteria for including domestic support measures in the permissible category, that is, the so-called, "Green Box". Concerns were raised that many grey area measures had been classified by some members as Green Box measures in order to exempt them from the reduction commitments.

• The member’s budgetary outlays for export subsidies and the quantities benefiting from such subsidies, at the conclusion of the implementation period, should not be greater than 64 per cent and 79 per cent of the 1986-1990 base period levels, respectively. For developing countries these percentages are 76 per cent and 86 per cent, respectively.

Developing countries took account of this provision in the establishment of their schedules.²⁵ All 10 developing countries that have export subsidy reduction commitments used the allowed flexibility to apply a lower rate of cut.²⁶

• During the implementation period, Article 9.4 stipulates that developing countries are not required to undertake commitments in respect of a number of export subsidies listed in the Agreement.²⁷

Article 9.4 primarily gives developing countries the flexibility to provide certain export subsidies which can be used during the implementation period. Of the 60 export subsidy notifications received from developing countries relating to the 1995 and 1996 implementation years, five made use of this provision.²⁸

• The provisions relating to disciplines on export prohibitions and restrictions will not be applied to developing countries, unless such a measure is taken by a developing country which is a net food exporter of the specific foodstuff concerned.

No developing country has notified the introduction of such a measure.

WTO members have also raised the issues related to the problems of the accumulation of non-used export subsidies and to the circumvention of export subsidy commitments.

In implementing commitments on market access, developed countries are to take fully into account the particular needs and conditions of developing countries by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these countries, including the fullest liberalization of trade in tropical agricultural products and those of particular importance for the diversification of production away from that of illicit narcotic crops.

According to the WTO Secretariat, the schedules of developed countries show greater than average reductions in tariffs on products of particular interest to developing countries. However, what is important at this stage is to evaluate whether, on a product by product basis, the scope of the product coverage of these reductions and the depth of tariff reductions were adequate to provide meaningful trading opportunities to developing countries. Moreover, an evaluation should be undertaken to establish whether agricultural exports of developing countries have been increasing at an adequate rate as a result of these commitments. This will require a careful analysis of the trade statistics since the implementation of the Uruguay Round Agreements, in comparison with the situation preceding the implementation, in products of export interest to developing countries.

Some specific problems in this area include:

• Tariff peaks: In many cases, tariffication resulted in tariff peaks in the agricultural sector. In some cases, tariffs in Canada, the EU, Japan and the US are prohibitive since they exceeded 200 per cent for MFN trade above tariff quotas.²⁹
• Tariff reduction formula: The tariff reduction formula used during the Uruguay Round negotiations was 36 per cent reduction on average with a minimum required reduction by 15 per cent. In preparation for future negotiations the current tariff levels and tariff reductions since the implementation process started should be analysed to see whether or not members made larger reductions on products that already had low tariff rates and the minimum required reduction from highly protected products resulting in a greater tariff dispersion among agricultural products or not.
• Tariff rate quota objective: The tariff rate quota system is supposed to ensure that a certain quantity of imports can enter the market at a lower tariff rate than the MFN rate. Many countries expressed concern over whether the tariff rate quota system had been used to achieve its initial objective.
• Tariff rate quota administration: Many problems regarding the administration of tariff rate quota were raised, including its complexity and the use of diverse administrative procedures among members. There are no clear guidelines for the implementation of the tariff quota allocation system under the Agreement on Agriculture coherently with the general GATT rules and other instruments (such as GATT Articles III and XIII and the Agreement on Import Licensing Procedures). Similarly, there are no clear guidelines to address issues such as the criteria for the eligibility of applicants for the tariff quota, the product specifications to which the tariff quota applies, the validity period for import licenses, etc.
• Tariff rate quota fill: The underutilization of tariff quotas has not been uncommon. A more problematic situation is when a higher above-quota tariff rate was levied on imports, even when the total import quantity had been below the quota quantity.³⁰
• Special safeguard provisions: Under article 5 of the Agreement, members who have converted their non-tariff barriers into tariffs are granted the right to invoke a special safeguard (SSG) that does not require an injury test similar to that in other sectors. The SSG may be invoked on specifically designated products facing possible competition from an influx of cheaper imports. A number of problems have been identified in the application of both volume-based and price-based SSGs. Those associated with the volume-based SSGs include the possible triggering of SSG as a result of tariff quota imports alone and the range of products covered by a single volume trigger. Those associated with the price-based SSGs include the possibility of applying additional duties as a result of limited imports.

It should be indicated that many of these difficulties are not directly related to S&D treatment. However, some of them may be addressed through the current S&D provisions. This would apply for example to the implementation of commitments on market access by developed countries to take fully into account the particular needs and conditions of developing countries, which is mentioned above in relation to tariff quotas. It should be pointed out that several elements needed for a comprehensive analysis of the implementation of the Agreement on Agriculture are not yet available, as for example the impact of the market access commitments and the effects of the implementation of the reduction commitments on world trade in agriculture. Analysis of the share of developing countries in the growth of trade in agriculture after the Uruguay Round, compared to the levels before the implementation process, will be of particular importance for the evaluation of the situation and the preparations for future negotiations.

A number of approaches and proposals are likely to emerge from the experience gained in the process of implementation. These may include:

• limiting the flexibility of developed countries in future domestic support reductions to provide more predictability in relation to specific products;
• reducing domestic support and export subsidies in developed countries,³¹ and dramatically reducing the current prohibitive tariff levels particularly in products of interest to developing countries;
• substantially increasing tariff quotas and devising more precise principles and transparent procedures for the administration of tariff quotas, in order to ensure that the market access opportunities and the scope for imports from developing countries and competition with domestic products are achieved; and
• addressing issues related to food security and assistance to LDCs and NFIDCs.

The Decision on NFIDCs contains mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level that is sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least-developed and net food-importing developing countries.

The Decision includes provisions related to:

• the periodical review of the level of food aid to LDCs and NFIDCs;
• the establishment of a level of food aid commitments sufficient to meet the legitimate needs of LDCs during the reform programme;
• the adoption of guidelines for ensuring that an increasing proportion of basic foodstuffs is provided to LDCs and NFIDCs in fully grant form and/or on appropriate concessional terms;
• ensuring that any agreement relating to agricultural export credits makes appropriate provision for differential treatment to LDCs and NFIDCs;
• providing technical and financial assistance in the context of assistance programmes to improve the agricultural productivity and infrastructure of LDCs and NFIDCs; and
• the possibility of drawing on the resources of the international financial institutions (IFIs) in cases of short term difficulties in financing the normal levels of commercial imports by LDCs and NFIDCs.

A number of activities are required to be undertaken regarding the implementation of this decision:

• An annual review of the implementation of the Decision.
• Submission of notifications, by developed countries, for actions taken under the Decision.
• The establishment of a WTO list of NFIDCs, which currently comprises the 48 least-developed countries as defined by the United Nations and 18 developing countries.³²

Moreover, the Committee on Agriculture also made some specific recommendations in this regard, which were adopted by the Singapore Ministerial Conference (SMC) and have since been followed up by the Committee on Agriculture. Despite these activities, no clear benefit has been identified by LDCs or NFIDCs as a result of the implementation of the Decision. On the contrary, what we are witnessing is a source of deep concern.

As regards the food aid situation, according to the World Food Programme, food aid deliveries for LDCs and NFIDCs have fallen drastically since the Uruguay Round Agreements were signed in 1994 when 7.3 million tonnes were provided. In 1995 food aid to this group fell to 4.9 million tonnes and in 1996 it dropped further to 3.9 million tonnes. There is no evidence that this reduction is justified by the gains in trade in agriculture and/or gains in agricultural production and productivity in these countries, or that this loss is compensated by increases in other forms of assistance that are included in the Decision.

FAO statistics indicate that food aid in cereals accounted for 64 per cent of the cereal imports of LDCs in the mid-1980s. This level sharply declined to 36 per cent in 1993/94 and 23 per cent in 1997/98. This assistance declined for NFIDCs as well. These levels were 22 per cent in the mid-1980s, 7.6 per cent in 1993/94 and 2 per cent in 1997/98.

As prices increased in world markets between 1993/94 and 1995/96, LDCs and NFIDCs experienced a substantial increase in their cereal import bills, which rose 85 per cent in the case of LDCs and 68 per cent in the case of NFIDCs. Cereal prices have been declining, which will probably ease the situation somewhat regarding the food bills of these groups of countries. However, FAO suggests not only that the food security situation in LDCs and NFIDCs is precarious but also that there are indications that their food import burden is likely to remain high.

In line with the recommendations of the Singapore Ministerial Conference (SMC), negotiations are currently underway in the framework of the Food Aid Committee/International Grains Agreement on a new Food Aid Convention. These negotiations, which were rescheduled for completion by the end of 1998, are focusing, inter alia, on the recommendations of the SMC concerning the level of food aid and concessionality guidelines, as well as on the relevant recommendations of the FAO World Food Summit. However, extremely limited progress has been achieved in these negotiations and they were not concluded on time. Similarly, no progress has been made in the negotiations in the OECD to reach an agreement relating to export credits.

It seems that the LDCs and NFIDCs, for various reasons, are reluctant to use the possibility of drawing on the financial resources of international financial institutions. For example, in 1995/96, during one of the sharpest food price increases in recent decades when the prices of cereals increased by around 20 to 50 per cent, very few countries used the existing IMF Contingency and Compensatory Financing Facility (CCFF). Therefore, the practicality of using current financing mechanisms is in need of a careful re-examination. It is recognized, however, that the World Bank is expanding its lending for agricultural development and has strengthened its rural development programme to assist LDCs and NFIDCs, including through enhancing food supplies and improving access to food.

The declining level of food aid and its highly unstable nature, mainly due to the linkage with the varying levels of surplus and price levels, means that the effectiveness of food aid in addressing the food requirements of these countries is doubtful. It is also not clear whether adequate technical and financial assistance has been provided in the context of assistance programmes to improve the agricultural productivity and infrastructure of NFIDCs. Moreover, in light of the inadequacy of financing facilities in Washington, the limited success in negotiations on the Food Aid Convention in London and on an export credit agreement in the OECD in Paris, it is apparent that the modalities of the Decision will require close re-examination.

This re-examination should aim to:

• increase the level of food aid and ensure that an increased proportion of basic foodstuffs is provided to LDCs and NFIDCs on a grant basis and/or on concessional terms;
• address the delay in reaching appropriate provisions on export credits to LDCs and NFIDCs;
• examine ways and means to strengthen agricultural productivity and infrastructure in LDCs and NFIDCs, with a view to reducing dependence on food aid;
• address the issue of financial needs of LDCs and NFIDCs in this context, possibly through the establishment of new financial mechanisms; and
• ensure a more active and effective role for the WTO in the follow-up of the implementation of the Decision that is not limited to awaiting developments in London (the Food Aid Convention), Paris (the OECD export credit negotiations) and Washington (the financial aspects in the international financial institutions).

III.4.6 The Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures ³³

The most important S&D provisions in the SPS Agreement are the following:

• According to Article 14 of the SPS Agreement, developing countries are permitted to delay the application of the provisions of this Agreement by two years. LDCs are given five years.

Developing countries and LDCs have used the transitional period provided for in this Agreement.

• According to paragraph 9 of Annex B of the SPS Agreement, the WTO Secretariat should draw the attention of developing countries to any notifications relating to products of particular interest to them.

The Secretariat has indicated that it has done so on several occasions. However, in view of the fact that this provision has not been implemented in an effective or systematic manner, a more effective mechanism should be devised to ensure the full implementation of this provision.

• According to Article 4 of the SPS Agreement, members should accept the sanitary or phytosanitary measures of other members as equivalent, even if these measures differ from their own, if it is demonstrated that they achieve an appropriate level of protection.

A number of difficulties have been encountered by developing countries due to the inadequate implementation of this provision. Measures in advanced countries have become quite demanding, and in some cases, a trade barrier to exports from developing countries. Furthermore, in practice, a number of developed countries are requiring "sameness" rather than "equivalence" of measures, which is a source of concern to many developing countries. An evaluation of the means for the effective implementation of this provision is necessary.

• According to Article 10 of the SPS Agreement, developed countries should take account of the special needs of developing countries in the preparation and application of sanitary or phytosanitary measures. Members should allow reasonable time between the publication and entry into force of an SPS regulation, in particular those affecting producers in developing countries. Longer time frames should be provided for compliance with new SPS measures for products of interest to developing countries.

The notification procedures for proposed SPS measures should provide developing countries with the possibility of identifying where they may have potential problems meeting new requirements affecting their exports, and the opportunity to request a phased introduction of the proposed measures where this is possible.

• Article 10.4 stipulates that Members should encourage and facilitate the active participation of developing countries in the relevant international standard setting organizations.

As in the Agreement on Technical Barriers to Trade (TBT), the participation of developing countries in international standard setting bodies remains inadequate. It should be noted too that standards are much more demanding in the area of SPS compared to that in the TBT Agreement. The issue of the active participation of developing countries in these bodies should be addressed from a wider perspective, namely that active participation requires adequate institutional infrastructure, human and financial resources and effective follow-up capabilities.

• Article 9.2 stipulates that where substantial investments are required for an exporting developing country to fulfil the SPS requirement of an importing country, the latter shall consider providing technical assistance to permit the developing country to maintain and expand market access opportunities for the product involved.

A number of developing countries have proposed that the WTO Secretariat request information from both developed and developing countries to identify whether any assistance has been provided in the context of this provision.

Developing countries are facing a number of difficulties in the area of standards, including in:

• the preparation of technical regulations;
• ensuring the effective functioning of national standardizing bodies and bodies responsible for conformity assessment;
• evaluating how technical regulations of other members could best be met;
• participating in international standard setting bodies;
• the inadequacy of infrastructure especially with regard to SPS services.

A number of ideas were proposed in relation to the implementation of S&D provisions in the course of the review of the SPS Agreement, several of which may also be relevant to the TBT Agreement. These should be addressed in a practical and pragmatic manner, with a view to reaching concrete recommendations to operationalize these proposals in a manner that would address the difficulties facing developing countries in this area. Some suggestions in this regard include:

• in the area of transparency and notification requirements:

• to allow longer time periods to developing countries to comment on notifications and to allow reasonable time between the notification and the date of entry into force of the measure;
• to provide a more accurate description of notified measures and improving the description of deviations from international standards whenever this is possible; and
• to establish a data base that incorporates members’ SPS rules and regulations, standards and comments on notifications, and make it accessible on the Internet.

• in the area of the special needs of developing countries, including technical assistance:

• to adequately implement provisions related to the situation in which substantial investments are required to fulfil SPS requirements of an importing country;
• to assist in strengthening human resource development, national capacity building, transfer of technology and developing a more effective exchange of information through the provision of technical assistance;
• to strengthen the participation of developing countries in standard setting bodies and to monitor developments in standards of interest to them, since even when standards are developed multilaterally, in most cases, the participation of developing countries is nominal;
• to examine ways to encourage and facilitate mutual recognition arrangements.

Standards are now becoming the preferred tool for disguised protectionism. Environmental, health and safety standards are being developed nationally, regionally and at the multilateral levels. Developing countries are not required to use international standards that are inappropriate for their development needs or that may hinder the preservation of indigenous technology. Nevertheless, there are numerous activities, particularly among developed countries, in relation to standard setting and mutual recognition of standards that may effectively impose a requirement on developing countries to modify their standards to conform to those of developed countries, regardless of the impact and actual need for these higher levels of standards from the perspective of developing countries.

The most important S&D provisions in the TBT Agreement are the following:

• According to Article 10.6 of the TBT Agreement, the Secretariat of the WTO should draw the attention of developing countries to any notifications regarding standards relating to products of particular interest to them. Despite this obligation, the WTO Secretariat circulates notifications indicating product coverage to all WTO members. An effective mechanism should be devised to ensure the full implementation of this provision.
• According to Article 12 of the TBT Agreement, Members shall take into account the special development, financial and trade needs of developing countries in the implementation of this Agreement and in the preparation and application of technical standards to ensure that such technical standards do not create unnecessary obstacles to exports from developing countries. The Article also stipulates that Members shall ensure that bodies setting international standards examine the possibility of preparing international standards concerning products of special interest to developing countries.

At the moment there is insufficient information to allow a comprehensive evaluation of the effectiveness of the implementation of this important provision. The TBT Committee agreed to invite Members, on a voluntary basis, to exchange information on the implementation of Article 12. The Committee also agreed to include a number of issues related to the follow-up of the implementation of this provision in its future programme of work, which could be taken up during the next three years and reviewed during the Second Triennial Review of the Agreement. These include issues related to capacity building in developing countries to study technical barriers to market access of suppliers from developing countries, especially small and medium sized enterprises (SMEs), in order to assess whether and how account is taken of the special problems of developing countries in international bodies setting standards.

• According to Article 12.5 of the TBT Agreement, Members shall ensure that international standard setting bodies are organized and operate in a way that facilitates the active participation of all countries, taking into account the special problems of developing countries. Article 11.2 also includes provisions for technical assistance regarding the participation of developing countries in the international standard setting bodies.

Four years after the implementation of the TBT Agreement, the participation of developing countries in international standard setting bodies remains inadequate. Moreover, the International Standards Organization (ISO) has indicated that, due to lack of resources, it was unable to respond positively to numerous technical assistance requests to contribute to the participation of developing countries in its activities. The TBT Committee has, therefore, agreed to explore ways and means of improving the implementation of this provision.

• Technical assistance in the area of standards (both in the TBT and in the SPS Agreements) is of particular importance to developing countries. Article 11 of the TBT Agreement stipulates that technical assistance should be provided to developing countries in the preparation of technical regulations, the establishment of national standards bodies, regulatory or conformity assessment bodies, and for participation in international standards setting bodies. Developed countries should also provide technical assistance to developing countries on ways in which the technical regulations of the developed countries can best be fulfilled. Article 9 of the SPS Agreement indicates the areas in which technical assistance is required by developing countries, including in the areas of processing technologies, training, research and infrastructure.

As mentioned earlier, the evaluation of technical assistance in this and other areas is an issue that requires detailed consideration and hence goes beyond the scope of this paper.

Developing countries have encountered numerous difficulties in the implementation of the Agreement on Textiles and Clothing. They have expressed frustration at the manner in which this Agreement has been implemented. A number of these difficulties are associated with S&D treatment.

The Agreement stipulates, for example, that:

• the particular interests of the cotton-producing exporting countries should, in consultation with them, be reflected in the implementation of the provisions of this Agreement.

No specific measure bearing reference to this provision has been notified to the WTO.

• in the application of the transitional safeguard mechanism, differential and more favourable treatment will be given to small suppliers, new entrants and least-developed countries.

No information has been provided in notifications of safeguard actions on the extent to which recourse was made to this provision in setting the parameters of such actions. This has been a major source of concern for many developing countries, especially in light of the commitment in the Agreement to use the transitional safeguard "as sparingly as possible" and which has obviously not been fully observed.³⁴

These examples are only demonstrative of the difficulties facing developing countries regarding S&D provisions in the important sector of the Agreement on Textiles and Clothing (ATC). Developing countries face tremendous difficulties in the implementation of this Agreement in general. These difficulties are not limited to S&D provisions but are also due to the fact that no meaningful liberalization in this sector has resulted from the implementation of the first and second integration phases. Hence, liberalization of textiles and clothing products that are subject to quotas in major developed importing countries should be accelerated. Furthermore, an understanding should be reached in order to limit the use of transitional safeguards and antidumping measures by developed countries against developing countries in this area.

Many developing countries impose conditions on the entry and operation of foreign investors in order to maximize investors’ contribution to their trade, industrial development and development objectives in general.

The TRIMs Agreement permits a developing country to deviate temporarily from a general provision requiring that no member will apply trade-related investment measures that are inconsistent with the provisions of Article III or Article XI of GATT 1994. These measures are enumerated in an illustrative list annexed to the Agreement. The transitional period is five years for developing countries and seven years for LDCs. There is also a provision that allows the possible extension of this transitional period.

It is worth mentioning that a few developing countries have indicated that they may require an extension of the transitional period in the TRIMs Agreement. They have stressed the importance they attach to local content requirements, since this enhances domestic economic activities, reduces the need for scarce foreign exchange and encourages the spread of technology as investors will try to encourage an improvement in the locally produced components they are required to use.

Inconsistent TRIMs were to be notified to the WTO within 90 days of the entry into force of the Agreement. Twenty-five members submitted notifications in this regard (22 developing countries, 1 LDC and 2 countries in transition). Members submitting these notifications have to eliminate the notified TRIMs by the end of the transitional period.

Developing countries that did not notify any TRIMs are not allowed to introduce any measures in the above-mentioned illustrative list. It has to be indicated, however, that many other trade-related investment measures are still permitted. The two TRIMs that were prohibited in the Agreement on the grounds that they extended more favourable treatment to domestic products in comparison to imports and thereby infringed the national treatment principle were local content requirements and trade balancing requirements.³⁵

The application of a number of trade-related investment measures by developing countries can still be justified for several developmental and trade reasons, including the insufficient reach and clout of national competition policies in their countries.

The wave of global mergers and acquisitions and other corporate alliances will have a profound impact on developing countries, which are much more exposed to the potential adverse implications of this trend. It may reduce competition and reduce the possible role and potential entry of enterprises from developing countries in a number of sectors that may be considered important by developing countries. In key economic sectors such as automobiles, semiconductors and consumer electronics there appears to be an increasing move towards worldwide market-sharing arrangements. Developing countries should, therefore, argue for the inclusion of disciplines on restrictive business practices.

At the same time, developing countries should maintain any trade-related investment measures that they believe are necessary in the process of development. In the context of future negotiations, they should also ask the international community to provide positive measures and incentives such as tax concessions by developed countries to their firms that invest in developing countries, technical assistance particularly in investment promotion activity, exchange of information, etc.

This Agreement is of great importance to developing countries due to the widely held view that certain types of subsidies may be critical in the process of development. The Agreement includes a number of significant S&D provisions.

The prohibition against providing subsidies that are contingent upon export performance does not apply to LDCs. Nor does it apply to certain developing countries identified in Annex VII(b) to the Agreement until such time as their per capita GNP reaches US$1,000 per annum.³⁶ However, if these countries reach export competitiveness in any product,³⁷ they are to phase out such export subsidies over eight years. For the rest of the developing countries, the phase-out period for export subsidies is eight years from the date of entry into force of the WTO Agreement, or within two years if export competitiveness is reached in any given product. No developing country has notified having reached export competitiveness. The period for phase-out may be extended if the Committee on Subsidies and Countervailing Measures determines that such an extension is justified.

The Agreement also establishes higher thresholds for what would be considered negligible import volumes in a countervailing duty investigation involving a developing country. There is a de minimis provision that no countervailing duty will be imposed on a product of an LDC or a developing country identified in Annex VII(b) with per capita income below US$1,000 if the subsidy is less than 3 per cent of its value. The threshold is 2 per cent for other developing countries.

In respect of actionable subsidies, there is a presumption of the existence of serious prejudice in certain situations, such as when the subsidy exceeds 5 per cent or when it is given to cover the operating losses of an industry. This presumption does not apply to developing countries and the affected country has to demonstrate the existence of serious prejudice. With respect to other actionable subsidies by a developing country, these subsidies may not be challenged on the grounds of serious prejudice.

When subsidies are granted in a privatization programme in a developing country, and such subsidies involve the direct forgiveness of debt or cover social costs, in whatever form -- including relinquishment of government revenue and other transfer of liabilities -- the provisions of the Subsidies Agreement relating to actionable subsidies will not apply if certain conditions are met. These conditions stipulate that the subsidies must be of a limited duration, they must be notified to the Committee on Subsidies and the result of the programme is the privatization of the enterprise involved.

Under the Subsidies Agreement, three categories of specific subsidies are non-actionable. These are assistance to research activities, to disadvantaged regions within a country, and for necessary measures to adapt to new environmental regulations. These were included in the Agreement to address the particular interests of developed countries.

The provisions of the Agreement relating to presumption of serious prejudice and to non-actionable subsidies are being applied provisionally for five years and will be reviewed in the middle of 1999 to determine whether to extend their application as currently drafted or in a modified form. Given the fact that the financial capacity of developing countries to provide subsidies is limited and that their development, particularly in the industrial sector, may require subsidies, they should argue for the inclusion of certain subsidies of interest to them to be also categorized as non-actionable under Article 8. These subsidies may include measures such as cheaper finance, financial support for advanced technology, subsidy for diversification efforts or market development, etc.

Exports of developing countries have been facing more frequent antidumping and countervailing measures. Indeed, the frequent use of antidumping actions against exports from developing countries by major trading countries has become a matter of serious and growing concern. The uncertainty and restrictiveness of these measures have created trade disruption affecting not only particular consignments but also longer term trade in the targeted product. The potential benefits from trade liberalization have been considerably neutralized by the use of antidumping measures against competitive exports in a number of products.

Moreover, enterprises from developing countries, particularly SMEs, do not have the technical and legal capacity or the resources to mount an effective defense. Furthermore, the assistance that developing countries can provide to their enterprises to defend their cases in an investigation process initiated by a developed country is very limited.

At the same time, the liberalization efforts of developing countries have led to a situation whereby their markets have become more vulnerable to dumped imports. But governments in many developing countries lack the expertise, capacity and resources to effectively use antidumping and countervailing measures to protect the legitimate concerns of their domestic industries.

Article 15 of the Agreement on the Implementation of GATT Article VI on antidumping recognizes that special consideration must be given by developed countries to the situation of developing country members when considering the application of antidumping measures. There is no information available regarding the implementation of this provision.

Article 15 also stipulates that the possibility of constructive remedies should be explored before applying antidumping duties that would effect the essential interests of a developing country. There is no information available regarding the implementation of this provision either.

The manner in which the objective of Article 15 of the Agreement on Antidumping on special regard for developing country members should be achieved is not specified. These special dispensations have not accrued to developing countries due to the fact that clear guidelines have not been laid as to how these provisions are to be implemented in practice. The establishment of detailed binding guidelines is necessary in order to implement this Article to protect the trade interests of developing countries from trade harassment arising from frequent antidumping actions. These should address issues such as raising the de minimis dumping margin for products exported from developing countries and raising the de minimis volume below which the injury may be considered to be insignificant for products exported from developing countries.

LDCs are the least integrated group of countries in the MTS. Despite the broader scope of S&D provisions in favour of LDCs, they are facing fundamental difficulties in implementing a number of substantive commitments in various Agreements, in adequately understanding the full extent of their rights and obligations and in fulfilling their notification requirements.

In addition to the provisions that are mentioned in this paper and which benefit LDCs, a Ministerial Decision on Measures in Favour of LDCs was adopted in the context of the Uruguay Round to address the special concerns of LDCs. It included provisions that require implementing positive measures to facilitate the expansion of trade of LDCs, to provide special consideration to the export interests of LDCs when applying import instruments, as well as provisions for increased technical assistance.

It was recognized that these provisions and measures were inadequate to address the difficulties facing LDCs and assist them in integrating in the MTS. This led to the decision at the Singapore Ministerial Conference to convene a High Level Meeting on Integrated Initiatives for LDCs to address the difficulties facing least developed countries. This meeting addressed market access issues as well as supply constraints and the technical and financial requirements of LDCs. Thirteen WTO members, both developing and developed, announced steps to improve market access conditions for LDCs.

The meeting also adopted the "Integrated Framework for Trade-Related Technical Assistance, Including for Human and Institutional Capacity Building to Support LDCs in their Trade and Trade-Related Activities". This framework seeks to increase the benefits that LDCs may derive from the technical assistance that is provided by the six organizations that were involved in the process -- IMF, ITC, UNCTAD, UNDP, World Bank and WTO -- as well as by other bilateral, regional and multilateral sources. For the first time, these six institutions are working in a co-ordinated manner to address the needs of individual LDCs.

More importantly, round tables are being organized for individual LDCs to identify their technical and financial assistance needs in the areas of trade and trade-related activities.

This effort is a step in the right direction. However, it is too early to reach a conclusive evaluation of the outcome of these activities. The follow-up of these activities should be one of the main priority areas in the future work of the WTO.

Over the past decade or two, liberalization has been the hallmark of economic policy around the world. Virtually all governments, in developed and developing countries alike, have adopted policies to deregulate, privatize and liberalize trade and investment regimes, as well as widen the role of the private sector in economic activity. As the liberalization commitments of developing countries deepen and the multilateral trade agenda broadens, it becomes necessary to examine how to strengthen S&D treatment and analyse the development-supportive role that it can play in this new environment.

There is no doubt that S&D treatment will continue to be an important issue for developing countries as they become increasingly subject to multilateral trade regimes. The overarching reasons for S&D treatment remain valid for all developing countries and, in particular, for LDCs. They will, however, have to formulate a strategy to deal with this issue in future negotiations in a practical and pragmatic manner, so that S&D treatment is adapted, and further developed and improved to meet the challenges of the new environment and evolving situation. This will not be an easy task and will require careful analysis and concerted efforts.

Two important issues demand attention in the future consideration of S&D treatment. These are the adequacy of transitional periods granted to developing countries to implement their obligations under various Uruguay Round agreements and the flexibility in policy options that developing countries need in the process of development.

While developing countries are generally making the efforts necessary to comply with the transitional periods in the various Uruguay Round agreements, some eventually may not be able to comply in certain cases due to genuine difficulties that they are facing. This is an issue that requires careful consideration. For example, a few developing countries have indicated that they may require an extension of the transitional period under the TRIMs Agreement. Similarly, it is not clear whether all developing countries will be in a position to fully implement the provisions of the TRIPs Agreement by the end of the transitional period. The assessments of needs undertaken in the context of implementing the Integrated Framework for Technical Assistance for LDCs also suggest that numerous difficulties are yet to be addressed in this regard.

It seems that in a number of cases transitional periods are too short, having been based on an excessively optimistic view regarding the pace at which institutional and human capacities can be built in developing countries, particularly in the light of the fact that the level of assistance that has been provided to achieve these objectives is inadequate.

The system has to be flexible enough to be able to deal with such eventualities. If liberalization efforts have been too rapid for weaker partners in the system, then a reconsideration of the situation needs to be undertaken in a realistic, balanced and equitable manner. Furthermore, if there are problems in the rules, these should be reconsidered. Hence, if, during implementation, some agreements are found by developing countries to be unbalanced or falling short of what is necessary to achieve their stated objectives, prompt consideration should be given to modifying such agreements.

The question arises as to whether relying mainly on transitional periods and technical assistance is enough to cater for the specific situation of developing countries and their development objectives. There is a very strong case for arguing that they should be complemented with adequate differential obligations for developing countries and with the necessary substantive exemptions from obligations for them related to their level of development.

The identification of the development dimension should emanate from the real differences between the economic situations and requirements of economies at different levels of development. This should then be translated into practical provisions including those related to transitional periods. Admittedly, transitional periods may be necessary and justified, particularly in cases when all that is required is time to adjust. But transitional periods that are chosen haphazardly and with no objective basis are unlikely to achieve their objective.

One of the crucial issues in relation to S&D in the evolving multilateral trade regime concerns the flexibility and degrees of freedom in policy options available to developing countries. Disciplines under the GATT and WTO should not deprive latecomers of the strategies and policy instruments that have proved successful in contributing to the build-up of the productive and export capacities in developing and developed countries. They should be allowed sufficient flexibility to adopt policies that are appropriate to their specific economic circumstances, level of development, institutional capacity and market maturity.

Developing countries should study the rules developed in the Uruguay Round Agreements from the perspective of their implications for the flexibility they give to pursue policies and strategies for economic and social development. There is considerable evidence that the Uruguay Round Agreements have dramatically reduced the degree of flexibility that was previously enjoyed by developing countries in formulating their trade policy regimes. Moreover, several aspects of S&D have been affected negatively by the Uruguay Round Agreements -- the right to access has been eroded and the right to protect has been constrained.

The analysis in this paper leads to certain conclusions, which are summarized as follows:

• The state of implementation of many S&D provisions is a source of deep concern to many developing countries. There is a need to address the issue of special and differential treatment at three levels: at the broad conceptual level, to examine whether the present special and differential provisions can achieve their objectives and, if not, how they can be developed to do so; at the detailed practical level, to examine the actual implementation of all the S&D provisions in various WTO agreements; and, at the level of linkages between the conceptual and practical levels, to ensure coherence in the overall approach to this issue.
• The deepening of liberalization commitments and the broadening of the multilateral trade agenda, as well as the experience of the implementation of S&D, confirm the need to strengthen S&D provisions in the Uruguay Round Agreements as well as the continued consideration of S&D treatment as a fundamental element of any future negotiations. Adherence to Part IV of GATT, and in particular the principle of non-reciprocity, both in letter and spirit, will be of fundamental importance in this respect.
• The lack of information on the manner in which a number of S&D provisions have been implemented requires information to be sought from developed countries so that WTO can monitor the implementation of specific provisions and undertake a comprehensive analysis of the situation regarding S&D treatment. The objective should be to ensure a systematic flow of information that would allow the continuous monitoring of the implementation of various S&D provisions.
• The provisions that are of a general nature or those that are expressed in best endeavour terms should be clarified and made more precise and action oriented. This can be achieved through the establishment of guidelines, negotiating Understandings (similar in nature to those reached during the Uruguay Round) and adopting appropriate Decisions by Ministers and the General Council, etc. Whenever possible, measurable criteria for the evaluation of the implementation of these commitments should be devised.
• The overall review of the implementation of S&D provisions cannot ignore market access issues especially in view of the declining share of many developing countries, particularly in Africa, in the value of world merchandise exports. Adequate attention should be given to the implementation and follow-up of those provisions that aim at increasing trade opportunities for developing countries.
• The difficulties facing developing countries in complying with their obligations within the transitional periods under various agreements should be examined in a flexible and practical manner.
• S&D treatment should, as far as possible, be linked to objective development criteria.
• Developing countries now in the process of accession to the WTO should not be forced to forego S&D provisions that they are entitled to enjoy and which are already enjoyed by members of WTO.
• The WTO Secretariat should assume a more active role in building awareness and disseminating information on the benefits of S&D provisions and assist developing countries, particularly LDCs, in making the most effective use of S&D provisions.
• The implementation of provisions granting developing countries more favourable thresholds should be examined in order to evaluate the adequacy of these thresholds and whether they should be refined or even reconsidered in light of the experience in implementing relevant Agreements.

Essentially, however, S&D treatment must be shifted from its currently peripheral role, in which it is granted as a grudging concession to developing countries in an unequal bargaining process. It must be accorded a central and purposeful policy role intended to reduce the disparities in levels of development and of the grossly unequal weight of different participants in the world trading arena.

This will mean devising for WTO a system and specific measures of positive and active support for the development process and the strengthening of national capacities of developing countries. Its implementation would become a central objective in whatever the negotiations or activities in the WTO. This will require a long term political commitment within the framework of an integrated international development strategy.

* Reproduced from: Bernard M. Hoekman and Michael M. Kostecki (1997) The Political Economy of the World Trading System: From GATT to WTO. Oxford University Press, page 236.

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Hoekman, Bernard M., Michael M. Kostecki (1997) The Political Economy of the World Trading System: From GATT to WTO. Oxford University Press.

International Trade Centre, UNCTAD, WTO, Commonwealth Secretariat (1995) Business Guide to the Uruguay Round. ITC/CS, Geneva.

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1 For example, the WTO convened over 2,300 meetings in 1996 and over 2,800 meetings in 1997, or an average of over 10 meetings each working day. This problem of adequate participation is especially severe for African countries, and for those, also mostly from Africa, that do not even have representation in Geneva.

2 Annex I of this paper consists of a table summarizing the major developments in the evolution of S&D treatment in the system.

3 Due to a close link between the situation before and after the Uruguay Round in respect of Article XVIII, this section deals with the issue in its entirety covering both the pre- and post-Uruguay Round situations.

4 When tariff bindings are modified or quantitative restrictions are imposed on imports under Sections A or C of Article XVIII, compensation is to be provided to members affected by these measures who are otherwise entitled to retaliate against the country invoking the said Sections of Article XVIII.

5 The way in which measures have been developed to deal with BOP difficulties is interesting. In the beginning the provisions were inadequate from the perspective of developing countries. They were, therefore, developed to allow them flexibility. But this flexibility was considered to be too lenient from the perspective of a number of developed countries and hence stricter rules were put in place during the Uruguay Round.

6 These countries are Bangladesh, Brazil, Egypt, India, Israel, Nigeria, Pakistan, the Philippines, South Africa, Sri Lanka, Turkey and Tunisia. Brazil’s request for BOP restrictions was not accepted by the WTO Committee on Balance-of-Payments.

7 In fact, the dispute settlement panel issued its report on 6 April 1999. The panel, inter alia, has held that "India is not entitled to maintain its balance-of-payments measures on the basis of the proviso to Article XVIII:11". (This proviso states that, "no Contracting Party shall be required to withdraw or modify restrictions on the ground that a change in its development policy would render unnecessary the restriction which it is applying under this Section".) The reasoning developed by the panel to reach this conclusion seems to limit the scope of flexibility, available under Article XVIII:B to developing countries faced with balance-of-payments problems. Moreover, while the panel rejected India’s argument that a Member invoking a balance-of-payments justification had a right to a lengthy period to phase out the measures that no longer met the eligibility criteria, it also noted that a number of factors favoured a longer implementation period, including the principle of special and differential treatment. This concession, however, seems to reinforce the current view in the North, which supports the S&D being granted to developing countries only in terms of longer implementation periods. India has appealed against the panel’s report and now the matter is before the Appellate Body of WTO.

8 It is worth mentioning here that, after concluding the negotiations on these Articles, a 10-year waiver was provided in 1971 to make it possible for developed countries to give tariff preferences to developing countries in the context of their GSP (Generalized System of Preferences) schemes. Later on, the Enabling Clause provided a permanent legal basis for the continuation of GSP schemes.

9 A similar obligation was included in the Uruguay Round agreement on antidumping. However, the implementation of this provision has been far from satisfactory and is, in fact, disappointing from the perspective of many developing countries.

10 Consistent with these provisions, many developing countries have not bound their tariffs on industrial products at levels comparable to those of developed countries.

11 Similar provisions for non-reciprocity are included in GATS Article XIX:2, which states that "there shall be appropriate flexibility for individual developing countries Members for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation...".

12 Article XXIV of GATT governs the formation of regional agreements among members and is entitled "Territorial Application - Frontier Traffic - Customs Union and Free-trade Areas".

13 Developed countries can also exchange preferences without extending them on an MFN basis, if these preferences are comprehensive and lead to a customs union or a free trade area.

14 This trend continued with the establishment of free trade areas with high levels of commitments and progressive liberalization that was accepted by developing countries in free trade areas with developed countries, such as in the case of Mexico in NAFTA and, of developing countries in the Mediterranean region with the European Union.

15 The GSP is granted by developed countries on a unilateral, voluntary and non-binding basis. They can amend, modify or withdraw benefits unilaterally and at any time.

16 The most important agreements containing technical assistance provisions are the Understanding on the Balance-of-Payments Provisions of GATT 1994, the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Technical Barriers to Trade, the Agreement on Implementation of Article VII of GATT 1994 (Customs Valuation), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs), the Understanding on Rules and Procedures Governing the Settlement of Disputes, and the Trade Policy Review Mechanism. It is worth mentioning here that there are also provisions for technical assistance to countries in transition and, in some cases, to developed countries as well.

17 However, the fact that the dispute settlement mechanism works in a more effective and efficient manner does not imply that it necessarily operates to the benefit of developing countries. See South Centre 1999b, Issues Regarding the Review of the WTO Dispute Settlement Mechanism.

18 However, in actual practice and with clear disregard for these provisions in the Agreement, developing countries have often been pressurized to undertake substantial obligations in some sectors, for example, financial services.

19 Countries are free to choose the products and the rates of reduction within the accepted annual total. This creates a high degree of uncertainty for other trading partners.

20 Twenty-eight WTO members (counting the European Union (EU) as one member) have total Aggregate Measure of Support (AMS) reduction commitments. Thirteen of these are developing countries. Other members are still required to notify under the domestic support chapeau every year (or every other year in the case of LDCs).

21 These are Chile, Cyprus, Korea, Pakistan, Philippines, Turkey and Uruguay.

22 These are Bahrain, Brazil, Chile, Colombia, Cyprus, Fiji, Honduras, Korea, Malaysia, Mexico, Morocco, Namibia, Pakistan, Philippines, Thailand, Tunisia, Turkey, Uruguay and Venezuela.

23 These are Brazil, Cyprus, Korea, Pakistan, Philippines and Slovenia.

24 These are Brazil, Cuba, Korea, Morocco, Thailand and Venezuela.

25 Twenty-five WTO members (counting the EU as one member) have a commitment to reduce export subsidies. Ten of these are developing countries. Other members are still required to notify export subsidy use every year.

26 These are Brazil, Colombia, Cyprus, Indonesia, Israel, Mexico, Romania, Turkey, Uruguay and Venezuela.

27 Subsidies to reduce the costs of marketing and providing transport charges on export shipments on more favourable terms compared to domestic shipment.

28 These are: Korea, Morocco, Pakistan, Thailand and Tunisia.

29 The following are examples of tariff rates to illustrate this point:

30 Such a situation can occur, for example, when an import license holder does not import the quantity up to the allocated quota quantity, although the government considered that the quota was filled once the quota allocation was made.

31 Even after the implementation of the Uruguay Round commitments, the subsidies by developed countries will remain extremely high reaching around US$160 billion by the year 2000.

32 While the WTO list of NFIDCs has been established and the Committee on Agriculture has been reviewing the implementation of the decision every year, the submission of notifications by developed countries has not been up to date in all cases.

33 The South Centre will shortly bring out a working paper on SPS issues, under its T.R.A.D.E. series. This working paper will evaluate the present Agreement on the Application of SPS Measures from the perspective of developing countries and make proposals to improve the same.

34 During the first six months of implementation of the Agreement, the US made 24 calls for consultation in relation to this provision.

35 Local content requirement involves imposing on foreign firms the use of a certain amount of local input in production. Trade balancing requirements oblige exports of firms to amount to a certain multiple of imports.

36 The US$1000 threshold should be re-examined as well as the situation where a country exceeds the threshold for a number of years and then falls below that level.

37 Export competitiveness exists when the export of a particular "product" (defined as a section heading of the Harmonized System Nomenclature) of a country reaches 3.25 per cent of world exports.