Least Developed Countries and the WTO

Special Treatment in Trade

H. Hawthorne

• Publisher: Palgrave Macmillan
• Year: 2013
• ISBN:
  9781137269775
• Topic: Politique et relations internationales
• Subtopic: Échanges et tarifs douaniers

A norm of special treatment for LDCs, created by the UN, has spread to various international organisations including the WTO. Within the WTO evidence of the institutionalization of the norm can be found both in the agreements and legal documents and the way in which the LDCs have been treated by other states. Helen Hawthorne investigates how norms impact on negotiations in international organisations. She shows that few studies of international organisations focus on the role of the weaker states in the organization, the majority focus either on the major states or the emerging economies. By ignoring the role of the poorer, weaker states in the GATT/WTO we are ignoring the history of these states in the organisation and do not get a true picture of the organization, how it operates in relation to them and their impact on the organisation.

1

Introduction

In recent discussions of the Doha Round and whether or not it can be revived, calls for an ‘early harvest’ for the Least Developed Countries (LDCs) have featured prominently in the debates. Similarly, at the latest World Trade Organization (WTO) Ministerial Conference held in Geneva in December 2011, WTO members committed themselves to ensuring that the interests of the LDCs were ‘given due priority in the future work of the WTO’ (WTO, 2011f). Of the seven decisions that were made at the Ministerial Conference, three related directly to LDCs, and LDCs were explicitly mentioned in a fourth decision on the Work Programme on Electronic Commerce. The three decisions in favour of the LDCs allowed for further negotiations on the Trade-Related Aspects of Intellectual Property (TRIPS) transition period for LDCs, agreement to try and further streamline the process of accession for LDCs and importantly, a waiver allowing WTO members to treat services and service providers from LDCs more favourably than those from other members.

Since the Ministerial Conference some progress has been made on the first issues. A proposal for the indefinite extension of the TRIPS transition period, until the countries graduate out of the LDC category, was submitted to the TRIPS Council meeting by the LDCs in November 2012 (WTO, 2012i), while the July 2012 General Council Meeting adopted new accession benchmarks for the LDCs (WTO, 2012j). The adoption of the LDC services waiver in 2011 was also important as it allows WTO members to opt out of one of the key norms of the multilateral trading system which obliges them to treat all members of the organization equally, thus putting LDCs in an exceptional position. Although opinions differ as to whether this would be a good or a bad thing for the LDCs themselves, it does not detract from the fact that they have been granted exceptions to WTO agreements and that there has been an increasing focus on these countries in the WTO in recent years in addition to the increasing focus on the emerging markets and the BRICS.¹

This increasing focus can be traced back to the Cancun Ministerial Meeting in September 2003, which marked a turning point for most of the WTO’s developing country members with them beginning to play a more assertive role in the trade negotiations (Panitchpakdi in Sutherland et al., 2005: 3). This more assertive role has been particularly marked for the BRICS whose growing economic power has helped them to have a major impact on the WTO and the Doha Round particularly via the G20 coalition in the agricultural negotiations. The Least Developed Countries also became more assertive at Cancun, with a group of four LDCs – Benin, Burkina Faso, Chad and Mali (also known as the Cotton Four) – raising the issue of cotton subsidies in developed countries, especially the United States, which adversely affected the incomes of farmers in the poorest developing countries. The issue particularly highlighted the disparity between developed countries trade and development policies. For the LDCs, the issue was particularly significant as cotton subsequently became an agenda item in the Doha negotiations, indicating that the LDCs were playing a more assertive role in the WTO. This new assertive role by the LDCs can be seen in many areas of the WTO negotiations including accessions to the WTO, market access, TRIPS and services and as noted above was reflected in the focus on LDCs in the decisions taken at the latest Ministerial meeting.

The focus on LDCs in the WTO presents us with a puzzle – how has a group of small and relatively weak countries been able to have such an impact on the WTO? It could be claimed that the focus on LDCs is an attempt to focus on issues of relative agreement between WTO members and thus detract from the lack of progress in the Doha Round. However, to fully answer the question posed above we need to look at the relationship between the LDCs and the international trade system. When the WTO was created in 1995, many of the WTO’s agreements contained references to the need for ‘special treatment’ for LDCs and they became a category of membership. The Marrakesh Agreement, which established the WTO, emphasized the organization’s role in assisting LDCs in their attempts to increase their role in international trade (WTO, 1999b: 4). Other key agreements offering special treatment for LDCs include the Agreement on TRIPS, the Agreement on Agriculture and the General Agreement on Trade in Services (GATS).² Like the Uruguay Round Agreements, the 2001 Doha Development Agenda contained a section on LDCs and committed the WTO members to the objective of achieving ‘duty-free, quota-free market access for products originating from LDCs’, as well as to designing a work programme for LDCs (WTO, 2001e). However, the focus on LDCs in the WTO was not new, but a continuation of a focus which began during the General Agreement on Tariffs and Trade’s (GATT) Tokyo Round negotiations in the 1970s.

Despite the inclusion of exceptions or special treatment provisions in the WTO agreements and in the Doha Round, there has been no significant research focusing specifically on the role of LDCs in the GATT/WTO with academic writers preferring instead to look at developing countries generally.³ The ‘more assertive role’ played by developing countries in the WTO has been the focus of research (e.g. see Narlikar and Tussie, 2004; Hurrell and Narlikar, 2006; Maswood, 2007; Lee, 2011), as have the Cotton Four (Pesche and Nubukpo, 2004; Lee, 2007; Sneyd, 2011); yet even amongst these works, LDCs are often ignored or mentioned only briefly. The lack of attention previously paid to LDCs in the WTO may be because they are not seen as being particularly powerful in economic terms especially when viewed individually. However, as a coalition some authors do note that LDCs have become more prominent in the WTO and cannot be ignored (Jawara and Kwa, 2003: 23; Narlikar, 2003: 85; Deese, 2008: 169). This lack of focus on LDCs within the WTO is surprising as they are a recognized category of membership in the organization as well as being one of the many negotiating coalitions. Indeed, LDCs are the only WTO membership category which is actually defined, with the category based on a UN classification.⁴ The lack of focus on LDCs in trade is mirrored by a lack of focus on them more generally within international politics, despite the fact that the United Nations has held four conferences focusing on the issues faced by these countries.

In looking at the WTO from an LDC perspective, what becomes apparent is that most of the WTO’s agreements offer some form of special treatment to LDCs, who account for only 20 per cent of members. Further, examination of the structure of the organization reveals that the WTO also has a Sub-Committee which focuses specifically on LDCs and the issues of importance to them, such as accession, market access and cotton. In addition, the LDCs form one of the WTO’s many formal negotiating coalitions. These facts, particularly in light of the current debate over the future of the Doha Round, prompt the following questions:

• Why does an organization which is seemingly run by the developed countries for their own benefits have such a focus on a small number of very poor developing countries and the issues of importance to them?
• Why does an organization founded on the principles of trade liberalization and non-discrimination advocate positive discrimination for certain countries?

The argument

To answer these questions, this book argues first that calls for special treatment for developing countries after the Second World War and particularly following decolonization created a norm of special treatment for these countries. Attempts to differentiate between developing countries led to a focus on the ‘least developed’ and the continual calls for special treatment for ‘least developed counties’ within the United Nations and UN Conference on Trade and Development (UNCTAD) since the creation of the category in 1971 and created a norm of special treatment for LDCs. This norm has been a feature of international politics since then and a feature of the trade regime since the Tokyo Round in 1973. Second, the book argues that because LDCs are a special category of developing country, they cannot be viewed solely through the developing country lens, but need special investigation on their own merits. To look only at the LDCs in combination with the rest of the developing countries ignores the history of this category and its relationship with the trade regime as represented by the GATT and the WTO. In redressing this issue, this book asks the following questions:

• Is there an international norm of special treatment for LDCs?
• Does a norm of special treatment for LDCs exist in the GATT/WTO?
• How has the norm manifested itself?
• What has been the impact of the norm in the GATT/WTO?

A review of the existing literature on the GATT and WTO shows a focus on developing countries in both the GATT and the WTO by many writers, notable examples include Hudec (1987), Martin and Winters (1996), Michalopoulos (2001), Katrak and Strange (2004), Odell (2006) and Lanoszka (2009). Prior to 2000, few academic writers researching either the GATT or the WTO looked at the role of LDCs in the trade organization, although many made passing reference to them, as noted above. These references usually acknowledge the special treatment that these countries receive, but do not ask why or look at it in terms of norms. The focus instead tends to be on developing countries generally despite their differentiation within the GATT and the WTO.

Writers who do mention LDCs do not consider them to be especially important in the trade arena, which is often evident from their mixing of the terms ‘less developed’ and ‘least developed’. Michalopoulos (2001) provides an exception to this with several discussions relating to LDCs. However, with developing countries becoming more important in the WTO, particularly the large developing or emerging countries such as India, China and Brazil, a separate focus on each grouping of developing countries and categories of membership is important in order to fully understand the dynamics of the trade organization. Legally, LDCs are an important category of membership within the WTO, as demonstrated by the many references to them in the legal texts of the organization’s agreements. Existing approaches to the WTO only partially assist in this investigation as they hint at, but do not fully explain why LDCs received special treatment in the GATT and continue to receive it despite the fact that this contradicts some of the key norms on which the organization is founded such as non-discrimination and reciprocity. An approach based on norms can help in understanding why LDCs receive special treatment.

In answering the questions raised above, this book focuses on the importance of norms and the influence these have on organizations and actors in international politics and international trade. In examining the treatment of LDCs within the GATT/WTO, the book uses a norms-based framework to demonstrate how the existence and development of a broader international norm of special treatment for LDCs has led to a focus on LDCs within the trade organization and its agreements. The spread of the norm from the international system to the trade regime and its subsequent strengthening, particularly over the past two decades, has enabled LDCs to receive special treatment and to actively advocate for special treatment. The book applies Finnemore and Sikkink’s concept of a norm lifecycle to demonstrate the existence of the international norm of special treatment for LDCs and to trace how the norm has developed and spread over time (Finnemore and Sikkink, 1998).

The norm lifecycle model is applied to the norm of special treatment for LDCs on three levels. First the norm lifecycle is applied at the international level to demonstrate the existence of the norm and its manifestations internationally. Second, the norm lifecycle is applied within the GATT/WTO, to demonstrate how the norm of special treatment has spread from the international level to the organizational level, and is currently operating within the WTO. Third, the study applies the norm lifecycle model to three specific cases within the WTO – accession, market access and cotton – to analyse whether the model works well on a more specific as well as a general level. The cases of accession to the WTO, market access and cotton highlight the increasing engagement of LDCs within the trade regime which is particularly noticeable in their activities as a negotiating coalition since the establishment of the WTO. The book finds that the LDCs themselves are now acting as norm entrepreneurs and pushing for further special treatment, which in turn has strengthened the norm of special treatment for LDCs within the trade arena. The importance of the norm is in the assistance which it provides to these countries in order to help them develop.

The rest of this introductory chapter will be split into three sections. The first section will concentrate on familiarizing the reader with the concept of an LDC as well as providing a brief overview of why these states require special treatment from a trade point of view and importantly what this special treatment looks like within the WTO. The second section will look at the theoretical framework which the book uses. The third section will explain the structure of the book.

LDCs and trade

The Least Developed Countries are a constructed category of structurally very poor developing countries originally developed by the United Nations in the 1970s in order to help these countries benefit from the UN’s Second Development Decade Strategy. In order to become an LDC, a country has to meet the classification criteria developed by the UN’s Committee for Development Policy (CDP). The current UN definition of an LDC is based on three criteria:

1. Income-generating capacity – based on a three-year average estimate of Gross National Income (GNI) per capita (under $905 for inclusion, above $1,086 for graduation)

2. Human Assets Index (HAI) – reflecting human development based on indicators of: ‘(a) health and nutrition, measured by (i) percentage of the population undernourished and (ii) under-five child mortality rate; and (b) education, measured by: (i) gross secondary school enrolment ratio and (ii) adult literacy rate.’ (UN, 2009a: 21)

3. Economic Vulnerability Index (EVI) – designed to measure the risk to development posed by exogenous shocks, and is based on an average of the seven following indicators: ‘(a) population size; (b) remoteness; (c) merchandize export concentration; (d) share of agriculture, forestry and fisheries in Gross Domestic Product (GDP); (e) homelessness owing to natural disasters; (f) instability of agricultural production and (g) instability of exports of goods and services.’ (UN, 2006b: 20, par. 13)

Inclusion and graduation levels are set for each of the three criteria, and for a country to be included in the list of LDCs it needs to meet all three inclusion levels. For a full list of LDCs, see Appendix B. Importantly, countries also have to agree to be included in the list – Ghana, Papua New Guinea and Zimbabwe all meet the criteria for inclusion, but have refused to be added to the list of LDCs (UN, 2009a: 10).⁵

There are currently 48 LDCs, the majority of which – 34 countries – are African states. Of the rest, eight are in Asia, five are Pacific Islands and one – Haiti – is classified as Latin America/Caribbean. The categorization of LDCs can be further sub-divided into Land-Locked LDCs (LLDC) and Island LDCs.⁶ Currently only 31 LDCs are members of the WTO and the majority of these have been members since the GATT days. Several more LDCs are currently in the process of accession negotiations, hence the importance of the accession process to these countries as highlighted by the 2012 General Council benchmarks (WTO, 2012j).⁷

Internationally, there are three main types of ‘special support measures’ for countries included in the list of LDCs. These come under the categories of Official Development Assistance (ODA), International Trade and Other forms of support (UN, 2010a, 2010b: 6–18). Traditionally, these special support measures were provided by the developed countries but they are also increasingly being adopted by the BRICS. For ODA, the special support measures include financial flows and technical assistance from both bilateral and multilateral donors. In trade terms, the special support measures come from preferential market access and special treatment regarding WTO obligations. Other forms of support include caps on LDCs contributions to the UN budget, and funding for LDCs delegations to attend international meetings.⁸ An UNCTAD study published in 2009 showed that out of 31 LDCs surveyed, ‘19 LDCs depended on grants (mainly ODA) to finance more than one fifth of their total government spending in 2008’, highlighting the importance of international assistance for LDCs (UNCTAD, 2009a).

Aid figures from the Organisation for Economic Co-operation and Development (OECD) show that the aid provided to LDCs mirrors the trend of aid disbursements and has been increasing since the late 1990s. The need for ODA was recognized in the Programme of Action for the LDCs for the decade 2001–2010, in which developed countries ‘committed to increasing ODA specifically targeted for LDCs to 0.2 per cent of GNI’ (UNDP, 2007: 4); the recent rise in aid to LDCs corresponds with the introduction of the Programme, in 2001. Technical cooperation or assistance is also very important to LDCs, and most international organizations that recognize the category also offer some form of technical assistance to these countries.

The OECD aid data categorizes developing countries into LDCs, Other Low Income Countries (OLIC), Low Middle Income Countries (LMIC) and Upper Middle Income Countries (UMIC), indicating some of the other categories of developing countries which exist. What is important to note about this is that many of these categories are specific to individual organizations. The LDC category, however, is used in most of the organizations linked to the United Nations, the two notable exceptions being the World Bank and the International Monetary Fund (IMF), although they do recognize the category in some of their work. Until 2001 when the United Nations established the Office of the High Representative for Least-Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS), the LDC category was administered by UNCTAD in Geneva and hence this group of countries has always been strongly linked to trade.

In trade terms LDCs face significant problems. UNCTAD’s 1989 Least Developed Countries Report identified four physical constraints on trade for LDCs – they typically have a small natural resource base which limits their capacity to export; many are geographically disadvantaged, either being landlocked or remote islands⁹; they are often vulnerable to natural disasters such as drought and floods¹⁰; and there are often physical constraints on the size of their markets which have made diversification difficult and meant that these countries...