“Developing” Countries’ Arrested Development

GENEVA – The World Trade Organization and global climate-change negotiations face comparable challenges. Both need to accommodate different levels of development and match them with appropriate obligations. Even the jargon is similar: “common but differentiated responsibility” in the climate-change talks, and “special and differential” in the WTO.Similarly, the classic North-South divide that shapes both sets of negotiations recalls the era when “North” was a synonym for “rich,” and “South” was shorthand for those who could not afford to play by the same rules. The world has changed dramatically since then, and in the climate-change negotiations it is now accepted that some developing countries will need to undertake emission reductions by 2020.The WTO is a step behind. Based exclusively on its own self-assessment, any member can claim to be “developing” and remain at that stage, which automatically entitles them to the benefits of “special and differential” (S&D) treatment. That translates into derogations from general rules and longer periods to introduce less ambitious tariff reductions.Assigning “common but differentiated responsibility” for climate change is basically a question of allocating mitigation costs between countries responsible for accumulated CO2 stocks and those responsible for current CO2 flows. In the WTO, the challenge is one not of measurement, but of leveling the playing field to ensure “fair” competition and an equitable distribution of the short-term costs of trade liberalization.Imposing “lighter” trade obligations on developing countries makes sense, because opening markets to competition implies that some uncompetitive industries may disappear faster than the economy can reabsorb the displaced labor and capital. Developing countries typically lack the fiscal resources needed to facilitate the transition, so they get more time to adapt, as well as less ambitious targets. Without this deference, it would be difficult to marshal support for trade liberalization, particularly from democratic governments.Most people accept the need to grant S&D treatment to developing countries. But for how long should they receive it?The process of “developing” is, by definition, dynamic, so deference must be temporary. But, obvious as this may be, the WTO still needs to acknowledge the provisional nature of S&D treatment. The WTO has 157 members, of which only 35 are “developed” countries, while 122 are “developing” (including large “emerging-market economies,” or EMEs).There are no graduation criteria and no rules to tell when a WTO member could be weaned from S&D treatment. Not surprisingly, no middle-income country has ever felt the need to surrender its benefits. This state of affairs is all the more remarkable given that countries in more dire need of support, the “least developed” category (a sub-group of “developing” countries that is entitled to additional benefits), can be forced out of that category when their per capita income surpasses a certain threshold. As a consequence, several new country groupings have mushroomed within the large category of “developing” countries in order to allow for more tailored S&D treatment.For the last 10 years, while the WTO was struggling with multilateral negotiations known as the Doha Development Agenda, the dynamics of the global economy have made the “developing” inconsistency even more apparent. In 2001, less than half of global economic growth was attributable to “developing countries,” including China, India, Brazil, and others. Nowadays, they account for almost 80% of global growth.Likewise, unemployment today is higher in OECD countries than in developing countries (8.6% versus 6%); the average fiscal deficit in advanced economies is three times higher than in “developing” economies (6.7% of GDP versus 2.6%); and their total financing needs (maturing debt plus the budget deficit) in 2012 are four times that of EMEs (27.7% of GDP versus 7.7%).Do these figures mean that large EMEs are in a position to relinquish at least part of the benefits of S&D treatment? The answer need not be black or white. Competitiveness is not necessarily uniform across all industries (for example, an EME can be very competitive in agriculture but not in manufacturing), and large segments of EME populations are still living in poverty. Yet it is increasingly difficult to argue that all developing countries need to enjoy a nearly unrestricted right to opt out of WTO general obligations.Several WTO “developing” countries are now net creditors, lend massive amounts of money to the United States Treasury, and are courted by European countries in financial distress. At the IMF, they are successfully arguing that their increasing economic weight should entitle them to larger quotas and more votes, and at the climate-change negotiations they have rightly accepted that they will need to assume reduction commitments.All of this should be celebrated, and the multilateral trading system deserves part of the credit. But the WTO also needs to accommodate divergent conditions and stages of development. Making room for reality would reinforce S&D treatment by giving more meaningful benefits to the countries that need them most.Hector R. Torres is a former Executive Director of the IMF and a former Chair of the G-24 Bureau in Washington, D.C. Copyright Project-Syndicate .org