Why Developing World Afraid of WTO

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Why developing world afraid of WTO

Hussain Mohi-ud-Din Qadri

The World Trade Organization was the culmination of Uruguay roundaimed at regulating international trade. The edifice of WTO is erected onmultilateral trading system evolved in the form of GATT since 1947. In1947 the members of the system were 23 which increased to 150 in2007. In terms of membership, it is remarkable increase and points to thefact that multilateral trading system is the best possible arrangement forregulation of international trade evolved by the world community so far.WTO is a reality now.The proponents of multilateral trading system argue that not only has themembership of multilateral trading system increased; its scope has alsoenlarged with the passage of time. Initially multilateral trading systemwas restricted to regulation of trade in goods only but with the formationof WTO in 1995, its scope increased to services and intellectual propertyrights also. The issues like antidumping duties, Customs valuation, Rulesof origin, subsidies and safeguard measures etc. have also come under itsambit. There is an elaborate legislation on these issues under the WTOand different cases decided by its appellate body have further improvedand clarified the WTO legislation.It is argued that WTO dispute settlement mechanism is very remarkable.The law provides for timelines to be observed for different stages of thecase. It further provides for equality before the law where a leastdeveloped country can file a complaint against the giant like USA. Twofundamental principles of non-discrimination i.e. Most Favored Nation(MFN) and National Treatment (NT) underpin the equal rights of WTOmembers. It treats all its members alike irrespective of the fact whetherthey are rich or poor, big or small, strong or weak.The decision making in WTO is based on the principle of consensus. Allmember countries have full participation and this distinguishes WTO fromother international organizations where authority is normally delegated totake decisions on behalf of members of the organization. WTO secretariathas limited executive powers and does not have power to influence thecountries’ policies. It merely provides technical and analytical commentson issues like regular trade policy reviews. The proponents of WTO alsosay that development issues concerning the developing countries havealso been taken up by the WTO as these issues are at the core of Dohadevelopment round launched in November 2001.

Despite all above ‘good’ points, the popular perception among thedeveloping countries is that WTO is not adequately addressing theirconcerns. It has failed to take concrete steps on issues having muchrelevance with the developing countries. The mushroom growth of regional trading agreements is manifestation of their dissatisfaction withthe multilateral trading system. The concerns of the developing countriescame to the fore at Cancun when they raised their voice on market accessissue both for agriculture and non-agriculture products. The CancunMinisterial Meeting in September 2003 ended in fiasco and without anagreement on how to proceed.The developed countries are the major providers of domestic support totheir farmers. This agricultural domestic support is of great concern fordeveloping countries. The farmers of the developing countries are unableto compete in the international market with the farmers of the developedcountries who receive large amount of domestic support from theirgovernments. The bulk of domestic support is provided by the EU, USAand Japan. According to World Trade Report (2006), the EU spent onaverage US$96.1 billion on domestic support, followed by the USA withUS$66.2 billion and then Japan with US$48.1 billion, during the period1995 – 2001.Export subsidies for non-farm goods are prohibited under the WTO law.Elimination of farm export subsidies means bringing agriculture at parwith other goods. It was agreed at the Hong Kong Ministerial Meeting thatsuch subsidies will be phased out by 2013. The World Trade Report saysthat 21 developed countries spent nearly US$250 billion in 2003 onsubsidies. The total subsidies given by whole of the world were aboutUS$300 billion in that year. In terms of subsidies to GDP ratio, thedeveloping countries spent 0.6% compared with developed countrieswhose ratio was 1.4%. It is imperative that elimination of these subsidiesshould be an essential component of a comprehensive Doha agreement.The results of negotiations on non-agricultural tariffs are also notforthcoming. The effective rates of tariff on goods of particular interest fordeveloping countries are still high. Even the Generalized System of Preferences (GSP) has not yielded any tangible results for the leastdeveloping countries. The traders of the developing countries requestingpreferences have to comply with some administrative and technicalrequirements. The most important requirement is related to compliancewith Rules of Origin intended to prevent trade deflection. Differentempirical studies have estimated the cost of compliance in the range of 3– 5% of the value of goods. For developing countries this compliance cost

may be higher due to institutional weaknesses and informationdisadvantages. Paul Brenton & Miriam Manchin (2002) have found thatonly one third of EU imports from developing countries eligible forpreferences under GSP entered the EU market with reduced duties.The developing and least developed countries constitute an insignificantshare in world trade. In 2004, Least-Developed Countries (LDCs)accounted for only 0.6% of world exports and 0.8% of world imports.Their export profile is characterized with a narrow range of products, alack of diversification of export markets and low technology content.Besides market access issue, these countries face acute supply-sideconstraints and do not have much “exportable surplus” to supply in theworld market. Even if trade is fully liberalized and market access issue isappropriately tackled, the developing world will not be in a position totake full advantage of trade liberalization due to their low capacity tosupply. The emphasis of WTO is on trade liberalization and no tangiblemechanism is in place to increase their potential for generating moreexportable surplus, which reduces the degree of relevance of WTO forthem. This strengthens their perception that WTO is a club of developedcountries only.The development issues came to the forefront when provisions under thehead “Trade and Development” were added to GATT. Special anddifferential (S&D) provisions were also a part of this move but factremains that WTO has not been able to evolve an effective mechanism torender help to the least developed countries for overcoming their supply-side constraints. There is a growing demand from the developing worldthat they should be given aid for increasing their trade. “Aid for trade” ishighly needed to address the concerns of the developing world andchange the popular perception that WTO is not capable of solving theirtrade problems.Time factor is highly important in this regard. The negotiations under theWTO are conducted in rounds spanning over years, meaning thereby thatreforms in the system are not frequent. About seven years elapsedbetween the end of the Tokyo Round and the beginning of the UruguayRound and it took eight years for the completion of Uruguay Round andthe launch of the Doha Development Agenda in November 2001. TheDoha Development Round is still going on and chances of its earlycompletion are not visible due to deep differences between the developingand the developed world over the issues of agricultural subsidy andmarket access. The glacial pace of negotiations in WTO Rounds hasfurther disillusioned the developing world. Despite several ministerial

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