Foreign Policy In Focus - What's This Organization (WTO): Developing Countries

What's This Organization (WTO):
An Annotated Glossary of Terms and Concepts
About the World Trade Organization

By Tom Barry, Codirector Foreign Policy In Focus
with research assistance by Julie Schneider, IRC

II. Developing Countries

Part 2 of a new FPIF report, What's This Organization (WTO): An Annotated Glossary of Terms and Concepts about the World Trade Organization, written by Tom Barry, FPIF codirector.

Accession by China:
The likely accession of China, the world's most populous nation and one of its largest economies, will have major repercussions on the balance of power in the WTO. The block of developing countries, already sometimes known as the "Group of 77 plus China," will increase its ability to obstruct the liberalization agenda advanced by the developed countries. According to Rubens Ricupero, secretary-general of the United Nations Conference on Trade and Development (UNCTAD), China's presence in the WTO will help draw attention to the problems of developing countries, because China has traditionally supported the negotiating positions taken by the South in multilateral settings. Among developed countries, though there is eagerness to see China with its vast domestic market incorporated into the international trading system, there is concern that, once it becomes a WTO member, China could slow down the dominant liberalization agenda by acting as a foot-dragger in the consensus building process or (worse still) by assuming a leadership position among developing countries.

Capacity:
In the context of trade negotiations, discussion of capacity generally refers to the disadvantaged position of developing countries. They lack capacity in three main areas: negotiations, implementation, and infrastructure.

Capacity to Negotiate:
Developing countries come to the WTO bargaining table and to the dispute resolution process at a marked disadvantage. The trade missions of developing countries are understaffed and lack technical expertise. Oftentimes, the same officials that represent their countries at the WTO are also the representatives to the World Health Organization, International Labor Organization, and other UN agencies in Geneva. Many of the least developed countries (19 of the 42 African WTO members) don't even have a representative at the WTO headquarters in Geneva. In contrast, the developed countries, led by the U.S., not only have formidable teams of senior staff but also count on a vast infrastructure of technical support (including facilities supplied by U.S. corporations) that can formulate the exact language for agreements and plan negotiating strategies.

Capacity to Implement:
This refers to the administrative capacity of member governments to implement new trade rules. Previous to the Uruguay Round (UR), the multilateral trade agreements mostly concerned the reduction of tariffs, and therefore required little more than the signature of the trade minister to implement. However, in the UR, members not only agreed to a new set of tariff reductions but also to reforms of trade procedures (such as customs valuation and import licensing) and regulations (including technical, sanitary and phytosanitary standards (SPS), and intellectual property law). Many developing countries now find that they do not have the capacity to implement these reforms, and that the developed countries (either individually or through multilateral organizations) are not providing the assistance they need to make the required reforms. The World Bank has estimated that in the least developed countries an entire year's development budget would be required to implement the reforms to make the UR trading rules functional. For example, while poorer nations may agree in principle to the wisdom of instituting global SPS standards, they may not have the financial resources to pay for the associated plant inspections. The SPS rules, customs valuation, and intellectual property rules impose no hardship on developed countries, because the new trading rules are generally based on their standards and procedures. Although primarily a developing country issue, developed countries in some cases also lack the capacity to make the new trade agreement function as intended. A case in point is the failure of the U.S. government to institute the administrative capacity to ensure that the NAFTA provisions allowing Mexican trucks and buses to enter the U.S. are fulfilled. Instead of establishing the checkpoints and procedures necessary to provide some assurance that the entering vehicles and their drivers meet certain safety standards, the U.S. has barred Mexican vehicles, thus violating the free trade accord and keeping this dimension of the Mexican service economy from competing with its U.S. counterpart.

Capacity of Infrastructure:
Although closely related to implementation capacity, discussion of the infrastructure capacity of developing countries refers more to the economic infrastructure (including transportation systems, port facilities, and communications systems) and social infrastructure (including education, skills training, and information services). Infrastructure capacity is integrally related to public sector investment, which is under threat from conservative budget-cutters in both the developing and developed world. Clearly, there is not a level playing field in infrastructure capacity. Despite cutbacks in public investment in the U.S. and other industrialized nations, the economic and social infrastructure in the developed world is far superior to that in developing countries. Structural adjustment programs, advanced by the IMF and World Bank with the strong support and advice of Washington, combined with plummeting aid flows, have debilitated the already weak capacity of developing country governments to provide minimal levels of infrastructure necessary to compete in the global marketplace. In the U.S., a camp of left-of-center critics of government economic policy advocate that the government greatly increase pubic sector investment in economic and social infrastructure. Such spending would achieve domestic goals of providing full employment and increasing quality of life while increasing the already considerable competitive edge of the U.S. in the global economy. This strategy would dampen populist criticism of economic globalization by expanding the social infrastructure to respond to trade dislocations (through trade-adjustment assistance, including job training for new, higher-skilled jobs) while steadily expanding the most productive, technologically advanced, and highest-paying economic sectors (such as biotechnology, computer technology, and communications). Among the concerns about such a capacity-building strategy are questions about the potential of the technology industries to provide enough jobs to replace ones lost as a result of foreign low-wage competition. Developing countries fear that increased infrastructure capacity (along with the resulting increases in productivity) will further deepen their own state of underdevelopment. Massive new aid flows from the developed to developing countries--guided by the principles of sustainable, equitable, and participatory development--are a necessary precondition to create a mutually beneficial system of international trade. Without a much-improved economic and social infrastructure in developing countries, steps to address the lack of negotiating and implementing capacity will fail to adequately address the capacity of the world's poorer nations to benefit from the economic integration promoted by the WTO.

Committee on Trade and Development (CTD):
The CTD was established by the Marrakesh Agreement, which created the WTO in 1995. The CTD has a subcommittee called the Sub-committee on Least-Developed Countries (SCLDC). Among the tasks of the CTD are a regular review of the special provisions within trade agreements designed to benefit developing countries and oversight of the WTO's technical cooperation programs.

Dumping/Anti-Dumping:
The WTO provides for countries to respond to predatory pricing practices of other nations--done in order to increase their market access--with antidumping measures that penalize governments allowing such practices. It has also been suggested that existing WTO language that calls for special regard for developing countries before antidumping measures are taken should be respected. The United States, a major user of antidumping measures, is opposed to allowing its antidumping measures to be reviewed.

Rural Development:
Developing countries largely oppose liberalization in the agricultural sector unless there are exemption provisions for developing-country measures designed to ensure food security and protect rural livelihoods. Because most developing countries have agrarian-based economies, liberalization could have severe human consequences if their agricultural sectors were ruined by food imports.

Developing, Developed, Least Developed, and Transition Economies:
The WTO itself has no standards to categorize countries according to their level of development. However, using categorization standards of the UN and World Bank, 80 percent of WTO members are either developing, least developed, or transition economies. All thirty of the countries currently applying for membership in the WTO are in one of these three categories.

Developed Countries:
North America (Canada and United States), EU, EFTA (Iceland, Liechtenstein, Norway, Switzerland), Australia, Japan, and New Zealand. The WTO has 30 developed country members.

Developing Countries:
Latin America and Caribbean, Africa, Europe (except EU and EFTA, Middle East, Asia except Japan, Australia, and New Zealand). The WTO has 93 members from the developing world, including 30 Least Developed Countries (LDCs) and transition countries.

Developed Countries Protectionism:
Although under the GATT system there was some recognition that developing countries needed special treatment (implemented under the Generalized System of Preferences), the dominant developed country bloc within GATT was careful to create exceptions both to the GSP and to GATT's overall tariff-reduction rules so as to protect certain sectors considered vulnerable to increasing developing country exports. This was most evident in the role that the U.S. and other industrialized nations played in allowing protective barriers and other trade-distorting measures (such as subsidies) for agricultural production, particularly in vulnerable sectors such as sugar and tobacco, where developing country production was cheaper. As developing countries began to develop their manufacturing sectors, the industrial nations changed GATT rules in 1961 to allow the imposition of discriminatory restrictions on low-cost imports of clothing and textiles. Initially the restrictions were designed to ameliorate the impact of the sudden loss of comparative advantage for industrialized countries, but the protectionist framework was steadily extended and institutionalized in the 1974 Multi-Fiber Arrangement (MFA). Yet another dimension of developed country protectionism against developing countries was the accepted use of voluntary export restraints (VERs) and orderly marketing arrangements (OMAs), which were used as "safeguard measures" against import surges. Although these protectionist responses could be used against the exports of any country, developing countries were particularly vulnerable. As tariff levels drop, developing countries are concerned about the use of nontariff barriers by developed countries to block market access, using protection of social and environmental standards as a pretext.

Food Security:
Under the concept of special treatment, many developing countries believe that agricultural liberalization should not be extended in developing countries to food produced for domestic consumption or to the products of small farmers. This exception would guard the fragile or declining food security of poor nations and protect the livelihoods of the rural population.

Freer Trade Plus Aid:
Many government officials and scholars in developing countries accept the proposition that liberalized trade, even in such vulnerable sectors as agriculture, is ultimately an aid to development. But they insist that poorer nations cannot be expected to increase the pace of economic liberalization without assistance from richer nations and from international and regional financial institutions. This aid would support safety nets to reduce the impact on affected communities and workers, to provide institutional support to allow developing countries to better advance their interests in negotiations and dispute settlements, and to improve the capacity of developing countries to meet international environmental and food safety standards.

G77:
Group of 77 is the forum of developing countries that has assumed new importance with the dissolution of the movement of Nonaligned Countries.

Generalized System of Preferences (GSP):
A system of preferential tariffs established within GATT/WTO for developing nations. When GATT was negotiated in 1947, there was no recognition of the special circumstances of developing nations, but during the Havana negotiations (1947-48) it was agreed to include provisions for developing countries to use protective measures that violated GATT rules with the approval of other contracting parties. In 1958, an expert panel commissioned by GATT members concluded that "there is some substance in the feeling of disquiet among primary producing countries [or developing countries which then had little manufacturing capacity] that the present rules and conventions about commercial policies are relatively unfavorable to them." In particular, the panel's report pointed to the high levels of agricultural protection of the United States and European countries as limiting the development potential of countries whose economies depended primarily on commodity trade. The panel advocated a moderation of agricultural protection in such highly protected crops as tobacco, sugar, and cotton; and it recommended the adoption of stabilization policies to limit short-term commodity price fluctuations, including the establishment of buffer-fund and buffer-stock mechanisms. These recommendations were not acted on, and it was not until 1971 that the GSP was incorporated within the GATT system. The GSP is a waiver of MFN obligations of reciprocity, under which developing nations enjoy generalized, nonreciprocal, and nondiscriminatory preferences for their exports to developed nations. In the Tokyo Round (1973-79) it was agreed that developing countries should assume progressively higher levels of reciprocity obligations as they developed.

Implementation:
Many developing countries demand that the WTO address implementation issues that arose from the Uruguay Round, including those related to antidumping, subsidies, SPS measures, TBT, TRIMs, TRIPs, and Customs Valuations.

International Textiles and Clothing Bureau (ITCB):
This is a group of 23 countries, mostly WTO members but including China, that export clothing and textiles and advocates full implementation of the UR Agreement on Textiles and Clothing (ATC) to ensure increased market access to developed countries, particularly the United States.

Least Developed Countries (LDCs):
The UN lists 48 countries as least developed countries (LDCs), which is a subcategory of developing countries. Of these 48, 30 are WTO members (See Appendix). Six additional LDCs are in the process of WTO accession: Cambodia, Laos, Nepal, Samoa, Sudan, and Vanuatu. Under the Trade and Development Committee, there is a Subcommittee on Least Developed Countries. In 1994 in the Marakesh Declaration and again in 1996 at the ministerial meeting in Singapore, it was agreed that LDCs merit special treatment beyond that accorded to developing nations. Developed nations were to provide special market access to net food-importing nations, and the WTO would coordinate aid programs with the World Bank and IMF. These multilateral banks together with UNCTAD, UNDP, and the International Trade Center participate in inter-organization planning meetings to prepare programs that will enable LDCs to integrate themselves into the international market. In Geneva, where only one-third of the LDCs have permanent homes, a Maison Universalle (general office) is under construction to provide free housing to LDC trade delegations.

Like-Minded Group (LMG):
A group of developing countries that have joined together to propose issues for the Seattle meeting and new negotiations. The members are: Cuba, Dominican Republic, Egypt, El Salvador, Honduras, India, Indonesia, Malaysia, Pakistan, and Uganda.

Manufactures:
The share of exports of manufactures accounted for by developing countries has been steadily rising--increasing from 4% in 1963 to 24% in 1997. This is regarded as a hopeful sign for developing countries, whose dependence on commodity exports has decreased. However, as productivity in manufacturing processes increase, the comparative advantage that many developing countries now hold because of lower wage levels may decrease, further limiting the development options of the world's poor nations.

Most Favored Pricing:
Mounting criticism of the pricing practices of transnational corporations, especially the pharmaceutical companies' pattern of setting higher prices in developing countries, has led to demands that trade agreements prohibit discriminatory pricing. Just as countries grant each other most favored nation status in trading relations, developing countries would be guaranteed most favored pricing status that would prohibit price discrimination. As it is, some corporations assert that because they hold intellectual property rights to their products, they can set prices in profit-maximizing ways. In the case of drug companies, they often set lower prices in developed countries because of pressure from national health systems and because of competition, whereas they set higher prices in developing countries even though costs are the same. Such monopoly pricing practices--prohibited within most developed countries--would be considered a violation of international trading rules that included the concept of most favored nation status.

Movement of Natural Persons:
Many proponents of free trade and many developing countries advocate that restrictions against the movement of workers from one country to another be liberalized in the same way that trade and investment restrictions are being liberalized. But this is a controversial proposal in both developing and developed countries, because it would further restrict national policy and would result in an increased flow of both skilled and unskilled workers toward countries with more job opportunities and higher pay, thereby depleting domestic labor markets in some countries and creating downward pressure on wages and labor conditions in other countries. Within the WTO, the issue of immigration is referred to as the "movement of natural persons."

Net-Food Importing Developing Countries (NFIDCs):
These are the nations most concerned about agricultural liberalization that may affect their food security and about the liberalizing posture of the Cairns Group, a collection of agro-exporting nations.

Participation in Merchandise Trade:
World Bank data shows that the ratio of merchandise trade to GDP in developing countries rose from 23 to 35% from the mid-1980s to 1997. The participation of developing countries in international trade has been on the upswing since 1973, when developing countries accounted for roughly 20% of world trade. In 1997, that percentage participation increased to 29%.(It is interesting to note, however, that in the immediate post-World War II period when GATT was negotiated and the major industrialized countries were focused on postwar reconstruction, developing countries accounted for 33% of world trade.

Special and Differential Treatment (S&D):
Like GATT (whose Part 4 addressed Trade and Development), the WTO is dedicated to incorporating developing countries fully into the global trading system. Recognizing that these countries (approximately 100 of its 135 members) need assistance to level the playing field, the WTO gives special attention to the circumstances and needs of its poorer members. It provides special and differential treatment in the following ways: extending the schedule or transition time for compliance with liberalization rules, enacting rules that give developing countries improved market access to wealthier nations, including language in its rules that require countries to consider the negative impact of their safeguard and antidumping actions, and offering aid to help members company with rules. Similarly, GATS has provisions for special treatments of developing countries. S&D treatment in trade is also known as preferential or nonreciprocal trade.

Review, Repair, and Reform:
Current chair of the Group of 77, Guyana Foreign Minister Clement Rohee captured the sentiment of many developing countries when he said at a September 1999 Group of 77 meeting that the "issue for any new round of negotiations is that of righting an existing imbalance" between what developing countries have committed to in past rounds and the lack of attention to their needs. His suggestion that the Seattle meeting be a time to "review, repair, and reform" past agreements and implementation procedures rather than expanding the WTO's agenda to new sectors has been echoed by many other leaders in developing countries.

Roads to Development:
Dominating the discussion of development within the WTO is the belief that increased international trade and integration into the global market is the only path toward development. Within the WTO, there is growing recognition that the successful experience of a handful of countries in export-oriented development cannot be replicated by all nations and that the WTO should make room for different development models that place more value on government direction and on deepening domestic markets. Among WTO governments, there is general agreement with the central WTO tenet that liberalized international trading generally advances economic growth and prosperity even in poorer nations. There is at the same time a widespread conviction that developing nations cannot rely on international free marketism as a development strategy but must formulate their own national and regional economic development plans that have the financial support of developed country donors, count on strong involvement by national government, and temporarily protect critical but noncompetitive economic sectors in the interests of providing jobs, ensuring food security, and broadening domestic markets.

Technical Cooperation:
Closely associated with demands for Special & Differential treatment for developing countries within the WTO are demands for increased technical cooperation and transfer of knowledge from developed countries that would enable them to establish the systems necessary to process trade (customs procedures) and to increase their abilities to meet the product standards common among industrialized nations. A common complaint is that developing countries lack the technical capacity to meet the Sanitary & Phytosanitary Standards (SPS) established for agricultural goods.

Trade Adjustment Assistance:
Providing assistance to those workers displaced by changing trade patterns has no official place within international trade rules. It is not regarded as a trade subsidy or as an obligation of the WTO or regional trade agreements. Providing unemployment benefits, educational opportunities, and job training programs for displaced workers is something that some nations can do to varying degrees; but most governments, including virtually all of those in developing countries, do not have trade adjustment assistance programs. Together with other dimensions of the relatively highly developed safety nets of developed countries, trade adjustment assistance provides some protection in the wealthiest nations from the negative repercussions of free trade. In other words, the countries with the highest unemployment rates and the least opportunity to develop competitive industries--and consequently where anxieties about the job-threatening impact of free trade are the greatest--are the ones without social safety nets and trade adjustment assistance to displaced workers. The remedy is not to disband the trade adjustment assistance programs in developed countries to create a more level playing field. To level the field, the developed country members of the WTO would provide the aid necessary for developing countries to create own trade adjustment assistance programs, while at the same time maintaining and deepening their own programs.

Trade Not Aid:
Aid to developing countries has dropped precipitously in the 1990s, from $32 for each developing country resident in 1990 to only $22 in 1997. For most WTO members, continued access barriers to Northern markets, lack of capacity to take advantage of what openings there are, the appropriation of trade income by globetrotting corporations, and decreasing aid flows have left them with neither trade nor aid--deepening the state of underdevelopment that keeps the vast majority of the world's nations and people in poverty. Trade Not Aid is a slogan that has been used by both free marketers, when referring to their belief that increased trade is the best solution to development problems, and by critics of the structural obstacles facing developing countries who call for better market access to the developed countries and better terms of trade.

Transition Economies:
Central and Eastern Europe, Baltic States, and Commonwealth of Independent States (CIS).

Transition Periods:
Under GATT/WTO rules, developing nations have been allowed longer transition periods to conform to new rules. However, these transition periods have been whittled down in both the WTO negotiating process and in bilateral negotiations. Developing countries complain that developed countries have enjoyed extended transition periods for textiles and agricultural goods while the transition periods and waivers granted developing nations have been short-term, generally about five years.

UN Conference on Trade and Development (UNCTAD):
Founded in 1964, this UN agency was created to address the structural obstacles to Southern development. The main obstacle, according to UNCTAD's first secretary general Raul Prebisch, was the deteriorating terms of trade between industrialized and nonindustrialized countries. The three "structuralist" solutions to the terms-of-trade crisis offered by UNCTAD were increased foreign aid to compensate the South's declining purchasing power, preferential tariffs allowing reduced tariff rates for Southern manufactured exports (to encourage industrialization), and the stabilization of commodity prices. In addition, UNCTAD and its supporters advanced the economic development concept of import-substitution industrialization, whereby individual countries or regions would set high tariffs on manufactured imports as a way of protecting infant industries and encouraging technology transfer and direct investment from the industrialized nations. The UNCTAD agenda embodied the thrust of the demands of the New International Economic Order (NIEO), a collection of third world economic development proposals. In character and execution, UNCTAD's agenda was reformist in that it did not seek to overturn the global capitalist system but to reshape it to address the underdevelopment conditions in the South. In contrast, beginning in the late 1950s numerous armed movements, often counting on the support of the Soviet Union, sought to address the structural obstacles of underdevelopment with more revolutionary solutions. A U.S.-led offensive on all manifestations of the NIEO at the UN has dismantled or debilitated UNCTAD and other UN entities committed to addressing the economic needs of developing countries. In 1992, for example, the Quad nations suppressed proposals to link UNCTAD discussions of trade and development strategy with those occurring within the North-controlled framework of the UR negotiations.

Sources for More Information

Martin Khor, "Why the South is Getting a Raw Deal at the WTO," International Forum on Globalization/Third World Network.

Joseph F. Stiglitz, "Trade and the Developing World: A New Agenda," Current History, November 1999.

Walden Bello, "The Iron Cage: The WTO, the Bretton Woods Institutions, and the South," International Forum on Globalization/Focus on Global South.

David Weiner, "U.S. Trade Policy: Misreading the Developing World," Overseas Development Council, available at http://www.odc.org/commentary/vpmay99.html