Ambassador Shea’s Statement On Procedures to Strengthen the Negotiating Function of the WTO

Ambassador Shea Statement at WTO General CouncilStatement by Ambassador Dennis Shea
U.S. Permanent Representative to the World Trade Organization
On Procedures to Strengthen the Negotiating Function of the WTO
Geneva, February 28, 2019

Chair, the United States last month submitted a detailed paper on differentiation at the WTO.  On that factual and analytic basis, the United States this month submitted to the General Council a proposal to resolve the differentiation problem, thereby reforming the WTO so that it will remain a relevant and viable negotiating forum.

I will begin my comments today by describing the key pillars of our approach to differentiation, and our view that reform is necessary.

The United States recognizes the great strides made by several WTO Members since the establishment of the WTO in raising standards of living, increasing real income, and expanding production and trade – goals set out in the Marrakesh Agreement Establishing the WTO.

That said, we also recognize that not all WTO Members have enjoyed significant rates of economic growth and development since the establishment of the WTO, and that special and differential treatment for those Members with the greatest difficulty integrating into the multilateral trading system is justified.

However, by applying special and differential treatment to advanced economies, we diminish and dilute the effectiveness of special and different treatment for less developed Members.  We also undermine our ability to reach new agreements.  We believe the United States has effectively made this case in the paper circulated as WT/GC/W/757/Rev.1.

Differentiation Paper

This paper argues that the practice of Members self-declaring development status at the WTO has severely damaged the organization’s negotiating arm by inhibiting the ability to differentiate among self-declared developing Members.  This practice also allows extremely advanced economies to claim rights to flexibilities that are not commensurate with the strides these economies have made in terms of development.

Further, the practice of self-declaration has not varied since the creation of the WTO.  Whether this practice was sensible in 1995, it makes no sense today, in light of vast changes in development and increasing heterogeneity among Members.

We examined these sweeping changes in Section 1 of our report.  In the process, we looked at a wide array of development-related indicators.  These include:

  • UNDP’s Human Development Index, a composite index of life expectancy, education, and per capita income;
  • A range of macroeconomic indicators, including economic production, per capita income, agricultural value-added and employment, and urbanization;
  • Trade indicators, including shares of global exports of goods and services, export value and volume indices, exports of high- and medium-technology products, and IP royalties;
  •  Foreign direct investment;
  • Corporate size, measured by revenue; and
  • Technological, space, and defense power.

Our review of economic, social, trade, and other data reveals a stark picture of economies that have substantially advanced in development since 1995 and those whose gains are more modest.  We believe this is a positive story, exemplifying great strides in development that we cannot continue to ignore.  Let me give a few examples:

  • The share of the population in East Asia and the Pacific living in extreme poverty fell from 54 percent in 1993 to 2 percent in 2015.  In Sub-Saharan Africa, the decline was more modest, from 59 percent in 1993 to 41 percent in 2015.  Notably, the number of extremely poor people in Sub-Saharan African rose by 26 percent during this period.
  • The trade indicators tell the same basic story – from 1995 to 2016, there was significantly increased differentiation among self-declared developing country Members.  Everyone is familiar with China’s story – explosive growth in exports to become the largest global exporter of goods since 2008.  Other self-declared Members, including India, Vietnam, Korea, Mexico, and Turkey also had impressive growth, while the gains for LDCs and Sub-Saharan Africa were much more modest.
  • There are numerous other positive examples of advances in economic growth and development contained in the report that I urge you to review.

Despite this increased differentiation among self-declared developing country Members, such differences are not reflected at the WTO.  This stands in stark contrast to other international institutions, such as the IMF, UNDP, and World Bank, who have sought to adapt to changing realities and increasing complexity regarding development by reforming how they classify countries by development level.  Other institutions have shown they can adapt.  The WTO has not.

The inability to differentiate among Members has hampered negotiating efforts at the WTO, with some advanced self-declared developing country Members insisting that only some obligations should apply to them, while all obligations should apply to a small handful of Members.

This is not consistent with the desire that Members expressed in the preamble to the Marrakesh Agreement Establishing the World Trade Organization, to enter into “reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations.”

More fundamentally, it has severely damaged the multilateral trading system.  Ultimately, those who bear the greatest cost are LDCs and other relatively poor Members.

  • Trade agreements that could open new opportunities for less developed Members and deepen their integration into the global trading system do not materialize because a good portion of the most advanced economies in the world refuse to be bound by future WTO rules.
  • Even if new agreements were possible, the benefits of special and differential treatment for LDCs and other less developed Members would tend to be diluted by more advanced Members receiving the same treatment.
  • After all, there is nothing special or differential when a Member that has landed a rover on the dark side of the moon and leads the world with the largest number of the most powerful supercomputers insists on the same treatment as one of our poorest Members.
  • But make no mistake – our concerns are not about just one Member. There are a large number of very advanced economies seeking to maintain the flexibility that comes with self-declared development status in current and future negotiations.   We believe a broad-based solution is required.

U.S. Proposal

With that context, I want to introduce the draft General Council Decision to promote differentiation in the WTO in a manner that reflects the world we live in today.

The draft decision establishes four categories of Members who, based on their level of development, will not avail themselves of special and differential treatment in current and future WTO negotiations.

The four categories are:

  •  A WTO Member that is a Member of the OECD, or a WTO Member that has begun the accession process to the OECD;
  • A WTO Member that is a member of the Group of 20 (G20);
  • A WTO Member that is designated as a “high income” country by the World Bank;
  • A WTO Member that accounts for no less than 0.5 percent of global merchandise trade.

I want to highlight a few important elements.

  • First, the proposal applies to current and future WTO negotiations, not to existing WTO agreements and their S&D provisions.
  • Second, the proposal does not require any Member to change its declaration of its development status.  Our goal is to make sure that special and differential treatment is only utilized by those having difficulty integrating into the global trading system.
  • Third, these criteria provide an objective basis for determining which Members can avail themselves of S&D treatment, while recognizing that no single criteria can capture the complexity of development.  The Members who meet any one of the four criteria are significant traders and/or are wealthier, relatively advanced Members.
  • Fourth, these criteria reflect lessons learned from the past.  For example, we have heard suggestions that Members should self-declare, but only avail themselves of S&D in certain sectors where they determine it is necessary.- This approach was tried during the DDA, and it failed.  Members had many opportunities to voluntarily contribute commensurate with their status, but they did not.- The S&D model in the Trade Facilitation Agreement (TFA) is not a readily or generally applicable model moving forward.  Recall that under the TFA, a Member may be less competitive if other Members implement the agreement and it does not.  Most trade agreements operate differently, in that a Member is likely to believe it will be better off if other Members implement the obligations but it does not.

Finally, the draft Decision does not preclude Members reaching agreement that, in sector-specific negotiations, other Members may also be ineligible for special and differential treatment.  We recognize the possibility that other Members may be significant players in specific sectors, and it probably would be impossible to create obligations for that sector that would not apply to such Members.

We look forward to hearing Members’ views and we welcome further discussion on this reform proposal in the future.