South Asia Watch on Trade, Economics & Environment (SAWTEE)

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S & DT under SAFTA
Published: The Kathmandu Post, 23 January 2004
By: Ratnakar Adhikari

Special and differential treatment (S&DT) is not a new concept. They are provided in all the trading arrangements – bilateral like Indo-Nepal Trade Treaty; regional like South Asian Free Trade Area (SAFTA); and multilateral like the World Trade Organisation (WTO). In the case of General Agreement on Tariffs and Trade (GATT) – the predecessor of the WTO – S&DT were provided through what is known as Differential and More Favourable Treatment for the Developing Countries (Enabling Clause).

However, after the conclusion of the Uruguay Round of multilateral trade negotiations and eventual formation of the WTO, they are now provided for within various agreements of the WTO, such as higher transition period for the implementation of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), and Trade Related Investment Measures (TRIMS). Another example of S&DT provided under the WTO is within Agreement on Agriculture (AoA), which envisages lower level of subsidy and tariff reduction commitments for the developing countries but absolves the least developed countries (LDCs) of the responsibility to make any reduction, neither in the case of subsidy nor tariff.

The inherent logic for the developing countries to demand S&DT in their favour is that such provisions would help relatively weaker countries catch up with the relatively stronger countries without having to compromise with their development objectives.

There is a considerable amount of debate on whether or not S&DTs are beneficial to the developing countries. The opponents of S&DTs like Prof. T N Srinivasan of Yale University argue that by refusing to make concessions during the various rounds to trade negotiations under the GATT, developing countries have become a net loser in the trade liberalisation game. It is also true that very few S&DTs contained in the WTO Agreements have actually been implemented. They have remained ‘best endeavour’ clauses.

After the singing of SAFTA, S&DTs provided to the LDCs have come under sharp focus. Apparently, four LDCs, as per UN definition, namely Bangladesh, Bhutan, the Maldives and Nepal have been provided S&DT within the SAFTA Treaty Text. They are contained in three sub-paragraphs in Article 3 (Objectives and Principles); four paragraphs in Article 7 (Trade Liberalisation Programme); entire Article 11 (Special and Differential Treatment for the Least Developed Contracting States); and one paragraph in Article 16 (Safeguards Measures).

However, a closer look at these provisions reveals that most of them are nothing more than ‘best endeavour’ clauses. They are par excellence as diplomatic gesture, but meaningless when LDCs actually want to enforce them. Among the three sub-paragraphs on “Objectives and Principles” the only effective sub-paragraph is the one that states: “The special needs of the Least Developed Contracting States shall be clearly recognised by adopting concrete preferential measures in their favour on a non-reciprocal basis.” However, since no deadline has been set for the operationalisation of the spirit contained in this sub-paragraph, this could also turn out ineffective in practice.

Similarly, under the Trade Liberalisation Programme the proposed reduction in tariff to 30% within two years does not mean anything to a country like Nepal because her average tariff is already less than 30%. However, reduction of tariff to 0-5% within eight years counted from third year (i.e., by 2016) could mean something to Nepal because Nepal may not unilaterally liberalise tariff any further and the WTO too may not impose such a requirement. Similarly, while maintaining a “sensitive list” flexibility to LDCs to seek derogation in respect of the products of their export interest may be useful for Nepal. Another useful provision could be the requirement for the developing countries to reduce tariff to 0-5% within three years for LDCs’ products, as opposed to five years provided for others.

In theory, there is one Article in the text which is exclusively devoted to providing S&DT for LDCs. However, this is not going to be terribly helpful because of the non-binding language contained in the Article. It uses such wordings as: “give special regards to”, “to the extent practical”, “consider, where practical”, and “special consideration shall be given for technical assistance”. The last one is particularly noteworthy because it is a statement of intention, not a commitment and no deadline has been set for the same. However, the mechanism for revenue compensation as set out in the same Article provides for the deadline in the sense that it has to be decided prior to the initiation of Trade Liberalisation Programme, which essentially means that it has to be finalised before 2006.

Finally, the Article on Safeguards states that safeguards measures cannot be taken against LDCs’ products as long as its share of imports of the product concerned in the importing Contracting State does not exceed five percent, and collective share of all the LDCs put together does not exceed 15 percent. This appears to be a straightforward point.

The general impression one gets from the text of the agreement is that LDCs have received limited S&DTs as in the case of the WTO. It is an irony that those very developing countries, which never get tired of blaming the developed member countries of the WTO for not providing meaningful S&DT to the weaker countries have shown their reluctance to provide the similar treatments to their fellow LDCs within a regional integration arrangement.

Looking at the entire SAFTA Treaty Text, it appears that even among the LDC countries like Nepal, Bhutan and the Maldives did not have any say, while Bangladesh had a significant say during the drafting process of the Treaty. This is because most of the S&DT provisions are suitable to their needs. This issue, seen in conjunction with the hesitation of the developing countries to provide S&DT to the LDCs within SAFTA framework, only serves to reinforce the notion that trade liberalisation issue is not only politically charged, but full of double standards.

One of the reasons for Nepal to fail to incorporate suitable S&DT provisions, for whatever they are worth, to serve its trade and development interests, could be that there was limited consultation with the stakeholders at the domestic level when the Treaty was in draft form. This is partly because there is no institutional culture for consultation and public participation in the treaty making process.

There is, however, a ray of hope at the end of the otherwise dark tunnel because there will be extensive negotiations on four major S&DT issues in days to come. They include: mechanism for revenue compensation; rules of origin; sensitive list and technical assistance. If the LDCs do the required homework and initiate an extensive consultation process during every stage of negotiation, they will still be able to receive some concessions from the developing countries. However, given the attitude of our bureaucracy, which assumes that it commands monopoly of wisdom, it may not happen the way people from outside the government would like to see.

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