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European Affairs
Trade Relations
The Demands of Developing Countries Must be Heard
Ransford A. Smith
Chairman, Committee on Trade and Development, WTO
The liberalization of world trade has taken gigantic steps forward over the past half century. Since the General Agreement and Tariffs on Trade was founded in 1948, there have been no fewer than eight rounds of multilateral trade negotiations and more and more developing countries have joined in the liberalization process.
A background report by the World Trade Organization last year noted that "in the last 50 years, great progress has been made in integrating developing countries into the multilateral trading system... but the progress has been uneven."
According to this report, the value of developing country merchandise exports increased by a factor of nearly 69 between 1948 and the establishment of the WTO in 1995. But "the developing country share of world merchandise exports was at its highest - roughly 33 percent - in 1948."
By 1999 the developing countries accounted for only 27.5 percent of world merchandise exports - five and a half percentage points below the share they enjoyed 50 years ago. While developing countries' merchandise exports increased by a factor of 69, those of developed countries increased by a factor of 100.
The obvious conclusion is that membership in the WTO and participation in its benefits have not been sufficient to ensure a closing of the gap between the trade performance of developing countries and other members of the international community.
One of the most important structural causes of this tendency has been the eclipse of trade in agriculture by trade in manufactures. Between 1948 and 1997, the trade of all countries multiplied by a factor of 17, but trade in manufactures grew by a factor of 30.
The share of agriculture in merchandise exports fell from 47 percent in the 1940s to 12 percent five decades later. The share of manufactures rose from 38 to 77 percent.
An obvious conclusion might thus be drawn. Those countries that have, or had, the capacity to shape or respond to changes in the global economy were usually the most successful performers.
This is evidenced by the fact that in the 50 years between the establishment of the GATT and the end of the Uruguay Round, the global trade share of Latin America fell from 11 percent to five percent, and that of Africa, from eight percent to two percent.
During the same period, Asia's trade share in the global economy almost doubled from 15 percent to 27 percent. By the mid-1990s, almost 90 percent of exports from China and the newly industrializing economies in Asia were comprised of manufactures, while in Africa, the figure was less than a third.
Those developing countries that have performed best in the past four decades or so are those that were able to board, even if only coach class, the manufacturing locomotive of growth.
The overall trend is clear. In trade terms, a significant number of developing countries have been marginalized.
Even more worrisome is the fact that the structure of the global economy is now changing even more rapidly and dramatically than at any time in the past 50 years. History suggests that those developing countries that are unable to respond effectively to these developments will face a very bleak future.
The question is this: If the developing countries have fallen further behind in trade terms, and if the WTO is the architect of global trade rules and a key contributor to determining the nature and character of the global economic environment, does the Organization not have a responsibility to recognize and to redress this situation?
It is not universally accepted that the WTO must be part of the solution to these problems. We must generate a consensus for change, both within the Organization and in the wider global community.
The WTO is primarily a forum for negotiating trade rules. Negotiating skills, technical expertise, and market size are some of the chips that are brought to the negotiating table. The disproportion in these "resources" between developed and developing countries in the WTO is perhaps more significant than in any other major multilateral body.
The Quad group, composed of the European Union, the United States, Japan and Canada, accounted for approximately 60 percent of world exports in 1999. The 34 WTO members with the lowest trade shares accounted for 14 percent.
The conundrum is this: Can decision making and rule making in the WTO alleviate trade marginalization when the influence and capacity of the poorer countries within the Organization are themselves constrained by the very fact of that marginalization?
Twenty-eight WTO members - primarily island or least developed African, Caribbean, and Pacific countries - maintain no resident missions in Geneva. Among the WTO's more than 100 developing country members, a significant number have very small missions with five or fewer representatives, who cover the WTO as well as other international agencies in Geneva, and have political and economic activities elsewhere in Europe.
Western developed countries routinely maintain missions staffed by ten or more representatives, focused exclusively on WTO matters. It should not be surprising that the broader and more complex the prospective negotiating agenda, the higher the apprehension among a significant proportion of the WTO's developing country membership.
Institutional reform is on the agenda of the organization as a means of addressing this concern. One salutary consequence of the last Ministerial meeting in Seattle is that serious efforts are now being made to improve internal transparency, to strengthen the consultative processes, and to ensure inclusiveness in decision-making.
The importance of this issue should not be underestimated. The WTO is no longer a small club of developed and middle-level developing countries. By its own count, the WTO held over 700 formal and informal multilateral and plurilateral meetings last year. Often, the informal meetings proved as important as, or more important than, the formal ones.
It is difficult to involve all 139 members at all times in consultations. But failure to do so poses the kind of risks that were evident in Seattle, when the exclusion of many developing countries from smaller negotiating groups had serious repercussions. Such exclusion is, in any event, unacceptable, given that WTO decisions and agreements affect all members and are legally binding.
No structural changes have yet been made. There is concern over the difficulty of making decisions at meetings in which all members participate, and although there have been proposals for establishing smaller executive or consultative bodies, few countries have been receptive to these suggestions.
Most developing countries are wary of establishing a small, formal decision-making or consultative body, however representative it might try to be. Many members are reluctant to delegate decision-making authority to others given the increasingly complex calculation of costs and benefits involved in WTO decisions and agreements, and their binding nature.
In the long run, the WTO will not survive unless it provides full scope for effective participation and responds to the concerns and needs of all its members, even if that means a slower pace of work. It is not only in developed countries, but in developing countries, too, that important constituencies are emerging that are deeply concerned about the impact of WTO decisions on their economic and social welfare.
It is often stated that the WTO is a rules-based organization, implying that it is a value-free forum committed to formulating objective trade rules and to ensuring compliance with them. An implicit, and sometimes stated, corollary is that the WTO is a rule-making forum and not a development body.
This, at best, is sophistry. Throughout history, the rules, whether national or global, have largely reflected interests and the balance of interests. The WTO is no different. Indeed, it is sometimes said that multilateral trade liberalization has historically contained two distinct strands of Special and Differential Treatment - one for developed countries, the other for developing countries.
The difference is that Special and Differential Treatment for developed countries is usually binding and enforced, while Special and Differential Treatment for developing countries is usually non-binding and unenforced.
The outcome of the Uruguay Round deepened these imbalances, both because of the nature of the agreements reached, as well as because of the broad scope of the round. Among examples of those imbalances are the treatment of agricultural subsidies and safeguards, the staggered removal of controls on textile and clothing imports and the way developing countries' export subsidies and incentives have been brought under WTO discipline.
Another area of concern for developing countries is the asymmetrical treatment of capital and labor. Under the Services Agreement, restrictions are not permitted on current and capital transactions necessary for the fulfilment of sectoral commitments, but there is no such mandatory requirement regarding the cross border movement of labor.
Developing countries continue to advocate raising the thresholds for anti-dumping or countervailing action against their exports. Countries that regard themselves as "small economies" feel that, because their trade shares are so small, their capacity to distort trade is negligible and thus additional flexibility is warranted.
As a result of the Uruguay Round, the WTO is now a full-blown international institution. But while the WTO fully comprehends its new status in areas such as dispute settlement and the review of trade policies, it has failed to come to grips with the implications for technical assistance, an area of vital importance to developing countries.
The WTO's meager resources for technical assistance are totally incapable of meeting the needs of developing countries. As a result of the Uruguay Round, developing countries are obliged to modernize their laws, train personnel, and establish procedures for implementing a large number of agreements in areas such as intellectual property, anti-dumping and customs valuation. The deadlines for doing so were in many cases decided without their input.
According to a recent Japanese estimate, it may cost the developing members of the Asia Pacific Economic Co-operation forum around $6 million each to implement their Uruguay Round commitments. If extrapolated to all the WTO's developing country members, this would put the overall cost at well over $500 million. If the WTO is insensitive to the fiscal burdens of conformity, it is inviting a public relations nightmare.
The scope of technical assistance is also important. Should the WTO confine itself to providing technical assistance that allows countries to bring laws and regulations into conformity with WTO Agreements? Or should the scope be wider, addressing, for example, the supply-side weaknesses that prevent some developing countries from taking advantage of negotiated market access openings?
I consider that it should - although there are other organizations with more resources and more funds to tackle supply side weaknesses.
It would seem clear, however, that the WTO must vigorously engage in strengthened cooperation with other bodies, such as the regional development banks, to provide trade-related capacity building and supply-side strengthening assistance for developing countries.
It would not be logical for the Organization to fail to engage fully in strengthening the capacity of developing countries to take advantage of the opportunities that flow from negotiations under its auspices.
Regrettably, however, a narrow view of the role of technical assistance, as well as the low level of funding, may be consequences of the ingrained view amongst some leading developed partners that the WTO is a rule-making, rather than a developmental organization.
The danger in taking the narrow view is that, as we saw in Seattle, the WTO is unlikely to be able to make rules in circumstances where a significant proportion of the Organization's membership do not view them as compatible with their fundamental needs.
There is no iron law that there has to be another trade round. The next round, if it is to be a truly multilateral round, will be exceedingly difficult to launch. Those who believe that the main impediments are the election timetables in major industrial countries are dead wrong. It is likely, in fact, that they may have missed the significance of Seattle.
Seattle was a milestone in the institutional evolution of the WTO. It was not an aberration, but part of a process that has been under way for several years - a process characterized by institutional tardiness in adjusting to an increasing and diverse membership, as well as the desire of all members to be more meaningfully involved.
The Uruguay Round marked a decisive break from previous rounds. It introduced new issues, such as services, intellectual property rights and investment measures, as well as the notion of the "single undertaking" - that is, the applicability of all agreements to all parties. The Uruguay Round agreements were made legally binding and enforceable through strengthened dispute settlement procedures.
The impact of these decisions has been coursing through the legislative and policy processes of many developing countries in the five years since the agreements were signed.
Domestic constituencies in these countries have become increasingly aware of the adjustment costs to vulnerable domestic industry and agriculture. Productive sectors in many developing countries - as well as public opinion in general - have become increasingly aware of the imbalances in the agreements, and of the burdensome nature of many of the obligations that developed countries must assume.
In areas such as subsidies, intellectual property rights, and trade-related investment, measures now prohibited or disciplined were used freely by developed countries during their own development.
It is against this background that the call for a new round has struck a large number of developing countries as ill-timed. Efforts to widen the scope of the proposed round, and thus the potential range of obligations to be assumed, are ill-conceived.
While there is a strong body of common opinion among developing countries, however, there is no homogeneous developing country position on a new round. A number of Latin American countries appear willing to accept the inclusion of some new issues, such as investment, but no developing countries want labor standards included.
Asia appears much less sanguine about the inclusion of new issues, and has emphasized the importance of textiles, as well as other implementation issues. Developing country members of the Cairns Group of agricultural exporting nations appear to be particularly concerned that a new round should not be undertaken at the expense of the current negotiations in Geneva on agriculture and services.
A large number of countries from Africa, Latin America and the Caribbean were unwilling to accept non-transparent procedures in Seattle or to be passive decision-takers. It is important that the implications of this strong stand not be underestimated. It is particularly easy to do so because many elements contributed to the failure in Seattle.
These included deficiencies in the preparatory process, inadequate organizational arrangements, poor management of the meeting, differences of substance among major players and the street protests by civil society.
Addressing these issues would help the cause of a new round, but would not answer the fundamental question that many developing countries will ask: In light of the old round, what do we have to gain from agreeing to a new one?
The important point is that, unlike in the past, developing countries will have to agree to negotiating decisions as partners in the process, not through the ex-post facto ratification of decisions already taken.
Since Seattle, the WTO has rightly been engaged in a process of "confidence building." This process includes efforts at improving internal transparency, and at making the decision-making process more inclusive. It has also included providing improved market access for the poorest countries, strengthened technical assistance and capacity building, and the extension of Uruguay Round deadlines.
There has been some - though inadequate - progress in almost all of these areas. It is clear that the confidence building exercise is a slow, difficult, and uncertain process. The progress achieved in current negotiations on services and agriculture, and the various mandated reviews, is also relevant.
The scope of the proposed round will remain of considerable importance. The use of the prefix "trade-related" as an umbrella under which to usher new issues into the WTO will only serve to make agreement on a new round more difficult.
Many issues can be held to be trade-related. These range from monetary and fiscal policy, to physical infrastructure, to population policy. Many developing countries believe the issues that developed countries seek to bring under the WTO's purview are merely a response to the agitation of certain domestic constituencies, or issues that respond, often narrowly, to their specific policy or trade interests.
There is genuine concern that any disciplines agreed in the WTO will be misused for protectionist purposes. There is also genuine fear that the "trade-related" slope will be a slippery one with far-reaching implications for the next round and any that might follow. One concern is that the WTO will be led further away from its core business, and down the path of a continuously expanding agenda with all that that entails in terms of new obligations for developing countries.
An expansive agenda will increase the number of potential flashpoints as new issues bring in highly motivated and interested constituencies, and increase anxieties among some member states as to the costs and benefits of including them in the WTO.
The continued strength and effectiveness of the WTO can be assured by focusing on narrower, but more broadly acceptable, core areas. In sum, the smoothest path to a new round would appear to lie both in raising confidence levels and in reducing negotiating ambitions. On this basis, it appears a new round does not lie in the very near future.
Developing countries have an extremely high stake in the health and vibrancy of the multilateral trading system, and in shaping the rules that govern it. The share of trade as a proportion of Gross Domestic Product is higher (and rising) in developing countries than in developed countries.
Many developing countries, particularly the smaller ones, that are being pressed to take on new trade liberalization commitments have trade-to-GDP ratios that are two, three, and sometimes larger multiples of the equivalent ratios in North America and Europe. The relative impact of trade rules, whether positive or negative, is considerably more far reaching for these countries. This makes it imperative that their concerns be taken fully into account.
The WTO has an important role to play in redressing this situation by promoting the beneficial integration of developing countries into the multilateral trading system. The present rules and institutional culture of the Organization tilt against the perceived interests of developing countries.
While some progress has been made, much more remains to be done. In the meantime, developing countries will continue to view a new round with caution until it is clear that the major trading powers have fully recognized the significance of Seattle.