World Bank on Special and Differential Treatment: Bad Economics, Worse Politics

1 May 2003

Claire Melamed, Christian Aid

As if the debate on Special and Differential Treatment (SDT) at the WTO wasn’t heated enough, the World Bank has decided to up the temperature a little with its own, highly partisan, contribution. In a recent draft from Bernard Hoekman, Bank trade economist, Constantine Michalopoulos and Alan Winters from the University of Sussex, the main proposal is to do away with SDT altogether for the majority of WTO agreements. Most WTO rules, which commit members to liberalise their international trading regimes, are, say the Bank, good rules and should be followed by everyone, regardless of their level of development.

However, they accept that the very poorest might need some extra help with some of the rules. The Bank’s paper has recommendations for what help the least developed countries should get: better market access, opt outs for a few countries for a few agreements, more technical assistance and a commitment to renegotiate some of the most blatantly unfair rules. But they recommend that, in return, these countries should give away the non-reciprocity they have enjoyed up to now – the right to protect their own industries and still enjoy access to industrialised country markets.

Neither proposal is based on good economics. As the paper itself says, most successful developers have done so through government intervention (p.8), and the record of trade liberalisation in developing countries over the last 20 years has been “disappointing” (p.9). So there seems little justification in the assertion that it is in the interests of developing countries to liberalise their trade regimes – and that giving up the right to protect for better market access is a good bargain from a development point of view.

The politics of the Bank’s intervention are equally unhelpful. Their recommendations are so close to those of many of the most powerful countries in the WTO – the ones that have been, in the eyes of many developing countries, responsible for blocking progress on SDT over the last year – that they will simply confirm the view among critics that the bank is wedded to the interests of the big industrial powers, and cannot offer unbiased research or policy advice to developing countries.

One of the key debates in the WTO around SDT over the last year has been over the extent to which changes to SDT require a renegotiation of existing agreements, and the extent to which changes should be seen as amendments to make agreements work in the way they were originally intended. The Bank, like most industrialised countries, is in no doubt at all – agreements should be renegotiated, and developing countries should be prepared to make concessions to get what in many cases they thought they already had.

However, developing countries say that if the agreements have to be renegotiated they will be paying twice – once for the original wording that expressed the intention to provide favourable treatment for poorer WTO members, and then again for the changes that are required to fulfil the promises made. After thirty years of adjustment, developing countries have little to offer in the way of tariff reductions – the best they could do in the way of making concessions would be to agree to the expansion of the WTO into new areas such as investment. This is quite explicitly the hope of many negotiators from industrialised countries, who are holding out SDT in key areas such as agriculture as the carrot that will make developing countries acquiesce to the stick of a WTO investment agreement.

Another, equally controversial issue in the WTO has been the question of differentiation – which of the group of countries that currently define themselves as developing in the WTO should be eligible for what SDT provisions. While everyone involved accepts that some form of differentiation will be necessary, the Bank go beyond the already limited proposals put forward by the developed countries, arguing that SDT should only be applicable to the Least-Developed countries and a handful of other very small and vulnerable countries. Apparently the millions of poor people who live in countries like Ghana that are desperately poor but not officially least developed, can take their chances with the producers of Europe and America.

In other words, SDT is to be “strengthened” by applying to fewer countries and across fewer agreements, and Doha is to be a “development round” by making poor countries pay again for what they thought they already had. If this is what the Bank has to offer in the way of intervening in WTO debates, perhaps it should stay out.

Copies of the draft report on special and differential treatment available from the Bretton Woods Project on request. Please send us your comments.

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