A platform to accommodate levels of development in international trade rule-making

7 February 2018

In a difficult environment for multilateral rule-making, important lessons may lie in the WTO Trade Facilitation Agreement’s mechanism for special and differential treatment of developing and least developed countries. This post argues that the agreement’s novel approach to differentiated implementation deserves further consideration as a way to simultaneously address concerns about the capacity to take on new obligations and levels of development.

 

The Eleventh Ministerial Conference of the World Trade Organization wrapped up at the end of 2017 with little to show in the way of multilateral outcomes. As has been the case in recent years, one of several sticking points was disagreement about the relationship between trade and development. Many developing countries insist that the Doha Development Agenda be completed before new issues are tackled. For its part, the United States called for greater clarity on the meaning of development within the WTO before significant new multilateral trade rules can be pursued.

While the precise content of the work programme for 2018 still needs to be determined, it seems inevitable that the question of how to accommodate differential levels of development will continue to have a prominent place. As members regroup in 2018 to consider how to make the WTO, in Roberto Azevedo’s words, a ”vibrant, flexible and nimble” organisation, they could begin by reflecting on the lessons from the Trade Facilitation Agreement (TFA).

A difficult environment for multilateral rule-making

The entry into force of the TFA in early 2017 was a significant development for the multilateral trading system. The streamlining of border controls and procedures will be especially beneficial to the consumers, traders and public coffers of developing countries and least developed countries (LDCs). And to the extent that implementation will lead to improved governance and transparency, the benefits to national administrations will be felt well beyond the facilitation of trade.

However, the important lessons of the TFA for the future of the multilateral trading system may lie in its mechanism for special and differential treatment (S&DT) of developing countries and LDCs. The features and flexibility of this mechanism can be credited for the success of bringing about these new multilateral rules in what was already, and is becoming even more so, a difficult rule-making environment.

The failure of the Eleventh Ministerial Conference to agree on any new rules is part of a broader slowdown in the pace of new international rule-making, in trade as well as elsewhere. States are increasingly wary of taking on new obligations that might limit their sovereign right to regulate or cost them dearly to implement, of which the populist-inspired backlash against globalisation is only one manifestation. At the same time, continued expansion of WTO membership has only increased the diversity of interests and levels of development that are, at least in part, behind the difficulty in creating new rules.

While the proliferation of regional and plurilateral trade agreements represent efforts to pursue integration in the face of global diversity, there is concern that these promote fragmentation that undermines the integrity of the multilateral system. The challenge therefore is to encourage continued rule-making at the multilateral level in a way that still accommodates differentiation in levels of development and capacity.

The TFA mechanism for special and differential treatment

The S&DT mechanism of the TFA allows the pursuit of these objectives simultaneously. On the one hand, the agreement preserves the integrity of the multilateral system by allowing for very little differentiation in its substantive obligations. With only a few exceptions, once the TFA is fully implemented and grace periods have expired, all ratifying WTO members will be subject to same substantive obligations.

Instead, the necessary differentiation is accomplished through the mechanism for transitional implementation periods by developing countries and LDCs. The TFA recognises that while the benefits of reducing trade friction are shared by all, the costs of implementation will be greater for those countries that have less well developed border administrations and systems of government.

But unlike the fixed limit transition periods that apply equally to a specified class of members found in many other WTO agreements, the implementation periods in the TFA are, within certain parameters, self-designated. Importantly, this implementation can be conditioned upon the acquisition of capacity to do so, and the TFA creates a formal framework for the provision of assistance and support to acquire this capacity.  While complete freedom to self-designate might not be the way forward, the agreement that a member’s implementation schedule can be tailored to its specific circumstances, including its capacity and its ability to obtain assistance and support, sets an important precedent.

The S&DT mechanism provides other flexibilities as well. For example, the application of WTO dispute settlement procedures to the TFA are suspended for certain periods, some of which are calculated relative to the implementation period. Fear of binding dispute settlement is sometimes cited, rightly or wrongly, as an impediment to the emergence of new trade rules. Suspension of formal dispute settlement rights, even if only temporarily, therefore makes it easier for some members to sign on.

This kind of differentiation works in the TFA context because the nature of its obligations is such that all countries benefit from their own implementation regardless of what others do. The incentive for free-riding is limited. The marginal benefit that inefficient borders might offer through reduced import competition is more than offset by the costs to consumers, export competitiveness and the public coffers. Reducing these inefficiencies facilitates trade without affecting policy space.

A platform to further international trade rules

In the end, the TFA does more than just treat some countries differently. It creates a platform that gives all states a role in bringing about the situation where all countries are treated equally. This is a significant development that puts trade, and aid for trade specifically, at the forefront of achieving many of the Sustainable Development Goals. In the current environment of diminished willingness to take on new international obligations, this kind of platform may be the best and, for now, only way to bring about, albeit more incrementally, further international trade rules.

The TFA’s approach to differentiated implementation remains unproven. It is not yet clear that it will not simply allow countries to avoid the kinds of investments that will help them to integrate better into global value chains. The mechanism for assistance and support will surely mitigate this risk. In the meantime, it is a novel approach that deserves further consideration as a way to simultaneously address concerns on the one hand about capacity to take on new obligations, and concerns on the other hand about the binary nature of levels of development reflected in past approaches to S&DT.

 

This blog post is partly drawn from the paper Evaluating the Implementation Obligations of the Trade Facilitation Agreement commissioned by ICTSD and authored by Robert McDougall.

Robert McDougall is a Senior Fellow at ICTSD.