Special and differential treatment

Special and differential treatment (SDT) refers to provisions in World Trade Organization (WTO) agreements under which developing countries or groups thereof receive more favorable treatment or undertake less onerous commitments than other members. Developing countries have long argued that their development status requires that they be subject to different and more favorable trade rules than other members. This principle was accepted in the General Agreement on Tariffs and Trade (GATT, Part IV) and later in theWTOagreements, which contain numerous provisions for SDT for developing countries, aswell as additional provisions containing even more favorable treatment for the least-developed countries (LDCs), a group of 50 countries that meet certain development criteria defined by the United Nations.

Themain conceptual premise that underlies SDT is that developing countries are intrinsically disadvantaged in their participation in international trade and multilateral agreements involving them, and developed countries must account for this weakness in specifying their rights and responsibilities. A related premise is that trade policies that maximize sustainable development in developing countries differ fromthose that do so in developed economies, and hence policy disciplines applying to developed economies should not apply to developing countries. The final premise is that it is in the interest of developed countries to assist developing countries in their fuller integration and participation in the international trading system.

The provisions introduced in the WTO agreements fall into two broad categories: positive actions by developed country members or international institutions and exceptions to the overall rules contained in the agreements. Developed countries have also agreed to take three kinds of actions to support developing countries’ participation in international trade:

• Provide preferential access to their markets, such as through the Generalized System of Preferences (GSP), under which many developing country manufacturing exports enjoy duty-free entry into developed country markets.

• Provide technical and other assistance to permit themto meet theirWTOobligations and otherwise enhance the benefits developing countries derive from international trade.

• Implement the overall agreements in ways that are beneficial or least damaging to the interests of developing countries and LDCs.

Developing countries and LDCs have accepted differential obligations under theWTO agreements, in that they are permitted to undertake policies that limit access to their markets or support domestic producers or exporters in ways not allowed to other members.Examples includeGATTArticleXVIII on government assistance and the general exemption from reciprocity in trade negotiations with developed countries to reduce or remove tariffs and other barriers to trade. Similar provisions for nonreciprocity are included in the General Agreement on Trade in Services (GATS, Article XIX:2), which states, ‘‘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.’’ Second, developing countries and LDCs get more time to meet obligations or commitments under the agreements (for example in Trade-Related Intellectual Property Rights TRIPS).

Both the premises and the practice of SDT have proved controversial. Some have argued that the freedomprovided to developing countries to protect their economies has harmed rather than promoted development and, similarly, that the lack of reciprocity in the mutual reduction of tariff barriers has contributed to the relatively high tariff barriers now facing developing countries in developed country markets. It is also argued that the GSP has provided significant benefits to only a few countries and has done little for the poorest and the LDCs.

Others have noted that most of the WTO commitments for SDTmade by the developed countries have been vague and legally unenforceable. Many poorer developing countries have been pushed to participate in agreements such as TRIPS, sanitary and phytosanitary measures, technical barriers to trade, and customs valuation without taking into account their lack of capacity to implement their commitments and without ensuring the provision of adequate assistance.Moreover the transition periods envisaged under theWTOwere unrealistic.The time limits for extensions had passed, and as of early 2008 there was little evidence that countries had made sufficient progress in institution building to permit themto implement their obligations. Finally, there is the question of which countries should be receiving SDT. Many low-income and vulnerable economies face the same kind of developmental constraints as the LDCs, yet only the latter receive special consideration, probably because their total participation in world trade is so small as not to constitute a competitive threat to developed country producers. On the other hand, because the principle of self-selection is used in determining who is a developing country, large countries that are well integrated in the international trade such Brazil,China, or Singapore are in principle eligible for the same kind of SDT as small vulnerable economies such as Ghana or St. Lucia.

The Doha WTO Ministerial Declaration underlying the Doha Round of multilateral trade negotiations was replete with pronouncements about SDT. It stated that ‘‘provisions for special and differential treatment are an integral part of the WTO agreements,’’ and it called for a review of SDT provisions with the objective of ‘‘strengthening them and making them more precise, effective and operational’’ (para. 44).As of early 2008, little progress had been made on these issues with the exception of a decision related toTRIPS and pharmaceuticals and a number of decisions related to LDCs. It was agreed that LDCs would not have to make any tariff reduction commitments as part of the multilateral negotiations. This was controversial as it raises the risk that LDCs will continue to maintain significant protective barriers that would undermine their development.

In TRIPS, developing countries can use compulsory licensing to reduce the cost of drugs for HIV/ AIDS whose patents were held by developed country pharmaceutical companies. But this provision is of no use to countries that have no capacity to produce these drugs domestically. Under heavy public opinion pressure, the WTO agreed to an amendment permitting developing countries that do not have capacity to produce drugs needed to combat epidemics to import them from low-cost suppliers at low prices under carefully circumscribed circumstances. In a related action, negotiators also agreed to extend the transition period for the implementation of theTRIPS agreement forLDCsuntil 2013 and for pharmaceuticals until 2016. But the decision does not cover other low-income countries that face similar developmental constraints.

In parallel with the Doha Round negotiations, an effort was made to strengthen the international community’s efforts to provide trade-related technical and other assistance. Agreementwas reached for an enhanced Integrated Framework for Trade-Related Assistance to LDCs with a new independent secretariat housed in the WTO and the expectation of substantially increased aid resources. On the other hand, a WTO Task Force on Aid for Trade, which was supposed to address assistance needs of all developing countries, could only come up with general and vague recommendations.

Recent experience with SDT suggests an emerging consensus that SDT should be extended tomany developing countries that do not have the institutional capacity to implement a number of WTO agreements or for whom implementation of such agreements is not a development priority and that many of these countries, especially the LDCs, are deserving of increased trade-related international assistance. Also, a number of proposals to strengthen monitoring of SDT needs and implementation, possibly in the context ofWTOtrade policy reviews, have received widespread support, though no specific agreement has been reached.

Controversies are likely to continue on specific developing country SDT proposals, however, especially those that affect basicWTOdisciplines such as binding of all tariffs, commitments not to use nontariff barriers to trade, or participation in the multilateral trade negotiations, as well as on which countries should receive SDT.Overall, the role of SDT in the world economy is going to continue to be small but important to a considerable number of poor developing countries, especially the LDCs.

See also access to medicines; Agreement on Trade- Related Aspects of Intellectual Property Rights (TRIPS); Doha Round; Trade Policy Review Mechanism; traderelated capacity building

FURTHER READING

• Hoekman, Bernard, Constantine Michalopoulos, and Alan Winters. 2004. ‘‘Special and Differential Treatment of DevelopingCountries in theWTO.’’World Economy 27 (4): 481 506. A recent assessment of the economic merits of various approaches to SDT.
• Hudec, Robert. 1987. Developing Countries in the GATT Legal System.Hampshire,UK: Gower. Basic reference to the legal provisions pertaining to SDT in the GATT, which were later incorporated in the WTO.
•  Michalopoulos,Constantine. 2001. Developing Countries in the WTO. Houndmills, Hampshire, UK: Palgrave. Contains a discussion of themerits ofSDTin the context of trade theory and experience with developing country participation in the WTO.
• World Trade Organization. 2000. ‘‘Implementation of Special and Differential Provisions inWTOAgreements and Decisions.’’ WT/COMTD/W/77. Geneva: WTO. Basic reference that contains a listing of all the SDT provisions in WTO agreements prepared in advance of the Doha Round.

CONSTANTINE MICHALOPOULOS