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No. 177, 13 March 2019
 
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Preserving Special & Differential Treatment in WTO: statement by Ambassador Zhang Xiangchen of China at the General Council Meeting


There remain significant gaps between developing and developed WTO Members in terms of economic and social development, and developing Members still face tremendous capacity constraints in participating in the multilateral trading system. The fundamentals for the application of special and differential treatment in favor of developing Members remain unchanged. US Communications WT/GC/W/757/REV.1 and WT/GC/W/764 neglect this. Below is the statement by H.E. Mr. Zhang Xiangchen, Permanent Representative of China to the World Trade Organization (WTO), at the General Council Meeting on Communications of Development on 28 February 2019.
Agenda Item 6 – Procedures to Strengthen the Negotiating Function of the WTO – Communications from the United States (WT/GC/W/757/REV.1 AND WT/GC/W/764)

Mr. Chair,

Development is an important agenda for the WTO. It concerns the interests of the broad membership as well as the future of this organization. With respect to the analytical paper submitted by the U.S. (WT/GC/W/757/Rev.1), I believe many members will have much to say. I also need to respond since China has been mentioned several times in the document.

Let me put it simply, the U.S. communication neglects the gaps between developing and developed Members in terms of per capita income, science and technology, economic structure, regional balance, social administration, quality of development as well as differences in their stages of development. The paper selectively picks indicators which exaggerate the level of development of some developing Members, and uses them to challenge the practice of self-declared development status at the WTO.

We are of the view that there remain significant gaps between developing and developed Members in terms of economic and social development, and developing Members still face tremendous capacity constraints in participating in the multilateral trading system. The fundamentals for the application of special and differential treatment in favor of developing Members remain unchanged. Therefore, we can’t agree with the views expressed in the U.S. communication.

Concerning the other U.S. communication (WT/GC/W/764), which proposes to deprive many developing Members of their right to special and differential treatment, I think it sits on top of the analytical paper mentioned just now. If the analytical paper is in itself flawed, the proposed actions in the form of draft decision of General Council certainly lack its legitimacy, and can only be a groundless "hanging garden" floating in the air.

As Members are aware, China, India, South Africa, Venezuela, Laos PDR, Bolivia, Kenya, Cuba, Central African Republic and Pakistan submitted a joint-paper (WT/GC/W/765/Rev.1) titled “The Continued Relevance of Special and Differential Treatment in Favor of Developing Members to Promote Development and Ensure Inclusiveness”, which will be discussed under the next agenda item. I will present our paper and respond to the U.S. in more detail later on.

Thank you, Mr. Chair.

Agenda Item 7 – The Continued Relevance of Special and Differential Treatment in Favor of Developing Members to Promote Development and Ensure Inclusiveness – Communications from China, India, South Africa, the Bolivarian Republic of Venezuela, Lao People’s Democratic Republic, Plurinational State of Bolivia, Kenya and Cuba (WT/GC/W/765/Rev.1)

First Intervention

Mr. Chair, 

Please allow me to briefly introduce our paper, and then share China’s perspective.

Our communication is composed of 11-page text and illustration, and 28-page graphs and tables, mainly covering six sections: Executive Summary, Development Divide, Capacity Constraint, New Members’ Contributions, Special and Differential Treatment and Self-declaration, and finally the Conclusion.

Similar to the U.S. submission, our paper also makes reference to some development indicators and figures borrowed from other international organizations. These indicators and figures are useful for understanding and analyzing the current state of development and growth trajectories of different members. But I have to emphasize that the WTO is a forum for negotiating multilateral trade rules rather than an institution for human and social development. What we can and indeed should do is that, within the context of the WTO rules, to explore how WTO Members, including developed Members and also developing ones whose level of development is relatively lower than the former, can use trade to better promote domestic economic growth, increase employment opportunities and reduce poverty. Classifying members into apples and pears is not the right way to achieve these objectives. The current dichotomy reflects the inherent logic of the multilateral trading system, including the logic behind its political, economic, legal and historic evolution. Special and differential treatment is a key policy tool for addressing development divides and capacity constraints, and therefore is indispensable for the multilateral trading system.

Mr. Chair,

I acknowledge, that developing Members have made impressive progress in trade, economic and social development in the past decades. Denying this fact is denying ourselves and overwriting the progress made. However, we are also well aware that the divide between developing and developed Members remains huge.

In 2017, while per capita GDP of the U.S. is 59,531 USD, the figure of China, India, Brazil, South Africa and many other developing Members is still less than 10,000 USD. Furthermore, since 1995, the year in which the WTO was established, the absolute increment data clearly shows that the per capita GDP gap between developing and developed Members has actually been widening.

Let’s look at some other tangible figures. In 2016, only 40.9% of the population in developing Members have access to mobile broadband, less than half of the figure for developed ones, i.e. 90.3%. In 2016, 85% of the world’s total population is in the developing Members, but they only account for less than 30% of the global services export. The gap is even larger in intellectual property trade: in 2017, the U.S. gain from IP trade is 27 times that of China, 183 times that of India and 213 times that of Brazil.

Comparing the two communications, it is obvious that the U.S. colleagues are seeing more water than before in our glass, and we see the glass as half empty. This reflects not only a difference in the perspectives, but also a difference in our historical missions. Our mission is to fill the glass until it is full, and of course this will be a long march.

It goes without saying that the world is changing rapidly. But it is also true that there’s a certain level of relative stability in this rapidly changing world. We need to be sensitive to the changes, but also have to respect stability. I thank the U.S. colleagues for illustrating China’s achievements in their paper. As Chinese, we’re proud of our hard-won achievements. But at the same time, we have a clear understanding on China’s basic reality and the country’s development status in the course of history, i.e. our country is and will for a long period of time remain in the primary stage of socialism, and China is still the largest developing country in the world.

Mr. Chair,

I acknowledge, that there are differences among the developing Members. Some grow faster, while some a bit slower. Denying this fact is denying common sense. Nevertheless, the commonalities among the developing Members, in particular the failure to achieve full and balanced development, significantly outweigh their differences. They are either short on both full and balanced development, or have particular challenges in achieving either one of the two.

Let me provide a few examples. LDCs, commonly recognized as the poorest countries, account for 38.2% of the impoverished population in the world, while the rest, 61.8% are in the non-LDC developing Members such as China and India. In 2017, for manufacturing companies listed on the “Fortune Global 500”, the average profitability of Chinese and Brazilian companies is only 17% and 29% of those of the U.S. ones. In 2018, among the world’s top 100 universities, only 4 are in developing Members. Even for some developing Members with relatively high per capita income thanks to their natural endowment, they still have a lot to catch up with the developed Members in the areas of social administration, governance capacities, etc.

Mr. Chair,

I acknowledge, that special and differential treatment is an exception from the general trade rules. Denying this fact is denying history. However, we know very clearly, that special and differential treatment is not a charity granted by developed Members; on the contrary, it is the result of the painful negotiations in which developing Members have paid a high price in exchange, and therefore an integral and indispensable part of the multilateral trade rules.

It is not difficult to understand the rationale for granting developing Members special and differential treatment. Anyone with a knowledge of history of the international trade knows that developing Members have been treated unfairly for a long period of time in the early days of the multilateral trading system. Taking agriculture as an example, per capita agricultural subsidies of the U.S. is 70 times that of China, 176 times that of Brazil and 267 times that of India. As pointed out by an UNCTAD expert, a simple reciprocal market opening amongst the countries with different levels of economic power is in itself a discrimination.

To correct historic discrimination, from Enabling Clause to Agreement on Textiles and Clothing, developing Members fought hard to get special and differential treatment in the negotiations and as we all know, it was an arduous journey. In the Uruguay Round, for example, developing Members made significant concessions in trade in services and intellectual property rights, just to keep textile trade within the multilateral rules and reduce distortions in agricultural trade. However, decades passed, and little progress was made by the developed Members to implement the development-oriented commitments. The “best endeavor” provisions remain best endeavors on a piece of molded paper. Hundreds of billions of U.S. dollars of distortive subsidies still plague the global agricultural trade and affect lives of farmers in the developing world.

Mr. Chair,

I acknowledge, that developed Members have a higher overall level of market openness than developing ones. Denying this is to deny a fact. But as we all know, since the establishment of the WTO in 1995, it is developing Members, not developed ones, who have made great contributions to the global trade liberalization, in particular the newly acceded developing Members, or so-called Article 12 group members.

While developed Members have maintained their tariff peaks, tariff escalations, high amount of agricultural domestic support and distortive export subsidies, developing Members, in the process of accession to the WTO, have made much broader and extensive commitments in the market opening and have faithfully implemented those commitments. The Article 12 group members have committed to full tariffication, and their average bound rate for agricultural products is only one fourth of those of the founding members. On average, they have liberalized 107 services sub-sectors, while the founding members have only liberalized 42.

In our accession negotiations, China has committed to zero Aggregate Measurement of Support, and reduced the average tariff for agricultural products to 15.7%. China also implemented the TRIPs Agreement since the day of the accession. After becoming a member of the WTO, China has actively participated in the ITA expansion negotiation, and has done much more than other ITA members, for example it costs China 7.5 billion US dollars of foregone tariff revenue per year to implement the agreement.

We made our contributions, and we did it with full willingness. But we also know our limits and do the best we can within our capacities. China has done so in the past, and we’ll do so in the future.

Mr. Chair,

When I travel on missions, I always buy some gifts for my wife. But there’s one thing I would never buy for her--shoes, because only she knows if the shoes fit or not. Abandoning self-declared development status is handing out our right to pick the right shoes for ourselves. I don’t think it would fit members and the system as a whole.

Mr. Friedrich Hayek, a prominent economist, expressed a view in one of his books, i.e. the fact itself does not tell us what is the right thing to do, but the misreading of the facts will probably lead to the wrong conclusion and even inappropriate action. The U.S. analytical paper provides part of facts and figures; however, its fallacy is obvious and fatal, because the approach of taking a part for the whole, could mislead people to draw biased conclusions. I believe that, to have a full picture, we need to read the U.S. paper side by side with ours. Only after we conduct a systematic analysis of all facts, can we attempt to have a meaningful discussion on such an important topic and try to find some converging grounds through the discussions. I also have to stress that while we explore such discussions, developed Members should faithfully fulfill their obligations, and take concrete actions to implement special and differential treatment that they have promised to the developing Members.

Thank you, Mr. Chair.

Second Intervention

Thank you, Mr. Chair.

I would like to make a quick response to the comments made by members, especially the United States. Then I would like to make a general observation of today’s discussion.

On the quote of Thomas Jefferson, I appreciate the clarification of Dennis. I think you are right, because you know Thomas Jefferson better than I do, just as I know Confucius better than you do. So we should have avoided selling water on the river. We can modify our paper to use another quote of Thomas Jefferson that you just mentioned, “Truth is the proper and sufficient antagonist to error”. I like this very much and I think this could be the consensus we achieve today.

On the Human Development Index which is used in the US paper and the main argument, I would like to share with you the comment in an article published on the UNDP website on the limitations of the HDI:

First, its calculation is solely based on country-specific statistics, neglecting the wide development divergence within countries, such as urban-rural gaps as well as regional gaps. It should be highlighted that the severely unbalanced development divergence among regions is one of the key features for developing Members.

Second, its basic indexes are overly one-sided. HDI measures the development level by only examining life expectancy, education and the income while factors such as environment, social welfare, population scale and natural disaster risk that may obstruct the development are not taken into consideration.

Third, the education and the GNI index are strongly related. Including the two highly correlated indicators may cause the multiplier effect which would undermine the accuracy of the final outcome.

Let me point out that the author of this article, Mr. Selim Jahan, is the director of the Human Development Report office. It is him who writes the Human Development Report.

On the data of our joint-paper, China is not challenging the validity of figures used in US communications. However, we believe only focusing on the economic aggregate does not accurately reflect the whole picture of what’s happening for developing Members. Therefore, our paper aims to provide a comprehensive reading of developing Members by presenting a different set of data.

Of course, I don’t think we can reach an agreement here on which data, the total amount or per capita, is more important. As Ambassador Deepak said just now, the only indicator employed in the WTO agreements to measure the level of development is a concept of “per capita”, i.e. ASCM 8.2(b) and Annex 7.

The US challenges the relevance of some figures used in our joint paper with trade policy, for example the internet access rate. But I think the internet access rate is very relevant in the time of information and digital development. And I have a question in my mind if the US is using double standard on the selection of use of data. The US brings up the examples and figures of space and defense power, and I think these are irrelevant to trade.

On LDCs, the LDCs are a group of countries recognized by the United Nations with clearly defined criteria. As the most vulnerable economies among all developing Members, the LDCs deserve more attention and tailor-made flexibilities. That being said, the LDCs are still members of the big family of the developing world. While safeguarding the interests of LDCs, we cannot deprive other developing Members of their rights in return. What we can do for LDCs is to “go beyond” special and differential treatment enjoyed by all developing Members by giving them extra care, rather than “subtracting” the existing treatment for other developing Members.

In addition, for LDCs special and differential treatment is only one aspect of what they need. Members should continue and improve their technical assistance and capacity building for LDCs and faithfully fulfill their commitments in the past, including the “Duty free Quota free” arrangements.

On China’s technology progress, as I said, we don’t deny that China has made rapid progress in some areas. We are proud that we have the capability to land the rover on the dark side of the moon. However, it is just natural for developing members, including China, to achieve high growth in one or a few specific areas due to factors like resource endowment and comparative advantage. A country’s development level should be evaluated in a comprehensive way instead of being judged only from data in a limited set of areas.

By the way, although we just have a little bit of good things, some people still want to kill them in the cradle, for example the 5G technology.

On the failure of the WTO negotiating mechanism, I also want to echo what ambassador Deepak said, that the current malfunction of the WTO negotiating mechanism is not caused by special and differential treatment or self-declaration, but by the capacity constraint of developing Members and the unreasonable power structure of the multilateral trading system. I will elaborate it later on in my general observation.

On the TFA approach and case by case approach, I think the TFA model is a creative and practical approach. Without this model I am afraid that we couldn’t have the early harvest of DDA. However, I don’t think the TFA approach is differentiation among developing Members. The different tiers of obligations are subject to the developing members to make the decision.

On case by case approach, I firmly believe that developing Members have the right to decide by themselves whether to fully use special and differential treatment or assume more obligations in different negotiations based upon their own situations. However, we shall not put case by case approach as a precondition and allow other members to make decisions for developing members on whether and how to use special and differential treatment.

On China’s agriculture domestic support, at yesterday’s meeting my colleagues from the capital provided a lot of introduction, clarification on China’s agriculture policy including the so-called “box exploded” issue and indicated that China will address the issue in a way that is consistent with WTO rules and China’s commitment.

I would like to share with you China’s constraint of the limited ceiling, i.e. the WTO rules and China’s commitment in its accession negotiation and the rising floor i.e. the growing domestic price. We all have the experience that if the clothes are too tight, the buttons will be broken. And this is the exact reason why the developing members including China need policy space through special and differential treatment.

On the correlation between development and liberalization, I believe that the liberalization process could be important too to promote  development. This is the reason why we have been pushing China’s liberalization through different ways, unilaterally, bilaterally, regionally and multilaterally. However, we need to establish an appropriate mechanism to conduct the negotiation for liberalization and we need to achieve balanced outcome and we also need to address the specific concerns of developing members including legitimate public policy objectives.

China has and will continue to liberalize its financial sector. I just want to give you one example. As of the end of 2017, the number of business entities established by foreign banks in China reached 1013, five times that of in 2002, one year after China joined the WTO. Furthermore, the total capital of foreign banks in China reached 480 billion US$, 9 times that of in 2002.

Mr. Chair,

I’d like to thank members who made comments on our submission. I think we had a meaningful discussion today. For me, analytical discussion is better than philosophical or ideological debates. Nevertheless, all figures, graphs and indicators eventually have to lead to a certain conclusion.

The fundamental question raised by the U.S. is whether the WTO should from now on, limit special and differential treatment for developing Members, or more precisely for a certain group of developing Members. In the eyes of our U.S. colleagues, special and differential treatment seems to be a loophole in the multilateral trading system. But to me, it is rather a narrow path that developing Members have to take to keep up in a structurally biased system.

What exactly is special and differential treatment? I used to say it is about four “L”s: “less” in terms of the scope of concessions, “lower” in terms of the amount of concessions, “longer” in terms of timeframe for concessions and “later” in terms of the start date of concessions. As simple as that.

I believe that the core issue of development is not whether the developing Members are willing to make greater contributions in future negotiations, but rather if they can have equal rights in the negotiations. For some, the only thing they see is the differences in the level of commitments amongst the members. What they have failed to see is the structural imbalance in the multilateral trade negotiations. Who sets the negotiation agenda? Who leads the negotiation process? Who has more say in shaping the negotiation outcome? If we dig deeper into these questions, we’ll see that some developed Members have certain de-facto privileges in the negotiations and they have made good use of these privileges. If such structural imbalance continues, the only way for developing Members to partially remedy the imbalance is through special and differential treatment.

For this reason, instead of pushing for differentiation or graduation, which is both politically and technically impossible, we should make concrete efforts to improve the capacities of developing Members so that they can better engage in the negotiations and implement their commitments. It could encourage them to make contributions that are commensurate with their capacities. Taking the ongoing fishery subsidies negotiation as an example, there is no one who doesn’t want to protect the marine resources that we commonly own. There is no one who doesn’t want to achieve sustainable development of the world’s fisheries industries. But if we don’t address the real capacity constraints of the developing Members, if we just assume that they are as capable as developed Members in terms of regulatory system and monitoring capacities, and that it is easy for them to assess the species and provide notifications, I think we’ll end up spending much time discussing the deviations for developing Members who will find the new rules impossible to implement.

Therefore, if the WTO cannot address the fundamental issue of negotiating power structure and take real reform measures, any attempt to deprive developing Members of their right to special and differential treatment is unjust and mission impossible.

Thank you, Mr. Chair.


Source: http://wto2.mofcom.gov.cn/article/chinaviewpoins/201903/20190302839144.shtml


* The views contained in this article are attributable to the author and do not represent the institutional views of the South Centre or its Member States.


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