Trade Negotiations Insights • Volume 8 • Number 6 • August 2009

Tracing the Special and Differential Treatment principle through the CARIFORUM EPA

by Alisa Dicaprio and Silke Trommer

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The EU’s decision to replace unilateral Lomé preferences with Article XXIV-compliant reciprocal agreements remains a subject of ongoing debate in trade circles. The major issue stems from the inequality of bilateral negotiations between the world’s largest bloc of industrial countries and the African, Caribbean, and Pacific (ACP) group of states, which includes LDCs and other vulnerable developing countries. The EPA process is not the first time that highly unequal negotiations have taken place under Article XXIV. It is however the first time that LDCs are involved, a challenge that is compounded because the ACP group neither initiated nor supported the change in relations. The assertion that EPAs would be trade and development agreements suggested that Special and Differential Treatment (SDT) would be a pillar of ensuing negotiations. But legally, Article XXIV does not acknowledge SDT. The extent to which SDT would ultimately inform the final agreements was thus unclear. Turning to EU-CARIFORUM, the only accomplished comprehensive agreement to date, we ask how well the EPA process preserves the possibility to revert to WTO SDT clauses. The insights may serve as points of reflection for ongoing negotiations as well as implementation.

Legal Relationship between Article XXIV and SDT

GATT Article XXIV predates the institutionalisation of SDT by three decades. The accepted norm permitting countries at different levels of development to have trade rule exceptions was not formally incorporated into the GATT until the Enabling Clause was added in 1979. Subsequently, the Uruguay Round made revisions to integrate SDT provisions throughout the WTO covered agreements. Article XXIV, however, was not amended.

SDT encourages non-reciprocity and modulated compliance with other trade rules for LDCs and developing countries, which poses an added challenge to the EPA process in light of Article XXIV. Yet, Article XXIV defines a compliant FTA as one which covers substantially all trade and eliminates barriers to trade among all participants. While a lack of explicit linkage between Article XXIV and SDT opens the door to interpretation, it does not indicate incompatibility. In services, for example, GATS Article V(3)a incorporates considerations for SDT in preferential agreements.

Ultimately, this ambiguity provides countries with a great deal of negotiating space to define this relationship. The particular EPA partnership format - industrial, LDC and developing countries - has no precedent in GATT Article XXIV history. This means that the practice established by the EPA will set the precedent for future negotiations of this type. Below we look at how the two major elements of SDT - non-reciprocity and modulated compliance - are treated in the CARIFORUM EPA.

Non-reciprocity in EPA practice

On the issue of reciprocity, Ochieng has argued that Article XXIV cannot be applied in a way that undermines SDT, since SDT is a fundamental principle of the WTO legal order.[1] Diouf has added that nothing in the WTO Agreements prevents parties to an FTA from interpreting Article XXIV in asymmetrical ways.[2] However, the EU’s insistence on liberalising 90 percent of trade flows in EPAs reveals their preferred interpretation of Article XXIV: Article XXIV conditions should be applicable to all FTAs regardless of the development level of the negotiating partner. Under CARIFORUM, the EU has admitted that the 90 percent was an average, which would allow the single LDC member to accept less liberalisation. However it is unclear how this norm will work in the EPA groups which consist primarily of LDCs.

Additionally, the EU’s reading of reciprocity effectively applies WTO rules to the 25 percent of ACP countries that are not members of the WTO. Using tariff bindings to illustrate, all ACP countries that are WTO members have bound an average 63.5 percent of their tariff lines under the WTO; non-members have zero bindings. Under an EPA, all CARIFORUM countries scheduled 90.7 percent of tariff lines for liberalisation. Not only will EPAs expand existing bindings, but they will also introduce bindings to ACPs that are not WTO members. Overall, the EU’s position represents an ideological shift away from the norm of different treatment for countries at different levels of development, which is at the core of WTO SDT.

Modulated compliance in EPA practice

Today, the WTO has identified 145 SDT clauses threaded throughout the covered agreements.

These provisions inform the EPA text in three different ways. The first concerns those elements of the EPA that explicitly refer to applicable WTO rules. It includes trade defence, customs valuations, technical barriers to trade, sanitary and phytosanitary measures and Article 9.4 Agreement on Agriculture. The wording typically confirms the application of relevant WTO Agreements or directly invokes the Article or Agreement in question. With the exception of the Agriculture Agreement, this is typical of FTAs and reflects WTO clauses stating that alternative rules violate WTO law. Although not confirmed specifically, it is reasonable to assume that WTO SDT provisions under these clauses, such as the exemption of least developed and certain developing countries from the export subsidy prohibition under the Subsidies and Countervailing Measures Agreement, can be called upon in the future.

In a second relationship, affecting the majority of WTO SDT provisions, norms are modified by the EPA. One example is GATT Article XVIII, which gives developing countries flexibility in the application of GATT rules for modifying or withdrawing concessions, imposing import restrictions for balance of payment purposes, and promoting the establishment of a particular industry. Under the EPA, policy flexibilities allowed by the WTO texts are effectively put under the control of the CARIFORUM-EC Trade and Development Committee.[3] Furthermore, no EPA provision foresees the temporary foregoing of other EPA rules for the purpose of establishing a particular industry. Another example of modified rules concerns the EPA’s dispute settlement mechanism. In the WTO, developing countries are granted specific timelines, legal assistance and special procedure, but this is not replicated under an EPA. Where SDT is replicated, it is attenuated. Thus, developed countries are expected to exercise due restraint at the outset of a proceeding, namely “in raising a matter”[4] at the WTO when an LDC is involved. Under an EPA, on the other hand, due restraint is introduced at the final stages, when the EC is “asking for compensation.”[5]

A third relationship includes those features where the EPA is silent on WTO SDT. This silence has two effects. First, by not including SDT, the developing countries are held to the same considerations as the EU. One example is provided by Article 12.2 of the Agreement on Agriculture, which frees developing countries from disciplines on export prohibition and restriction on foodstuffs. In prohibiting such measures, the CARIFORUM EPA identifies bilateral safeguards as the sole short term policy tool in the area of food security.[6] Second, GATS, for example, typically includes best endeavour clauses and commitments to take into account developing countries’ needs in negotiating liberalisations. There is no direct contradiction with EPA in legal terms, and judging the extent to which these SDT rules have been followed during negotiations is subject to personal appreciation.

These modifications to SDT merit attention for two reasons. First, by limiting the availability of SDT, the EPA text goes directly against developing countries’ articulated negotiating goals in the Doha Round. Second, while there are twenty-two specific LDC provisions in WTO SDT, the EPA reduces this to two provisions refering to LDCs and four provisions refering to Haiti. Together with its strict reading of Article XXIV, the EU’s EPA practice virtually eliminates differential treatment for LDCs. In the absence of other existing examples of this trade format, this practice will serve as the baseline for how LDCs are treated in North-South FTAs. Both observations suggest that EPA SDT treatment has repercussions for the space developing countries occupy in the wider trading system.

Global SDT trends

Looking at the bigger picture, EPAs can be interpreted as reflecting multilateral trends in SDT. The first is the shift from development to adjustment. Under the GATT, special considerations for developing countries were intended to balance these countries’ inability to fully participate in the international trading system. Under the WTO, SDT is aimed at delaying, but not removing, eventual compliance with trade rules. A second trend is an increased emphasis on reciprocity. There is a global movement away from providing special levels of preference to categories of countries at different levels of development. Increasingly, unilateral preference programs are regional (as EPA or AGOA) rather than global (as GSP) and do not differentiate treatment between LDC and developing country beneficiaries.

EPA negotiations are well-suited to address these issues since only one EPA, CARIFORUM, been completed, and its single LDC member, Haiti , has not yet acceded. There is considerable room for negotiators to identify costs and benefits of SDT and to negotiate more appropriate terms. The ultimate outcome will not only establish the template for future bilateral negotiations of this format, but also inform the multilateral development of SDT.

Authors

Alisa Dicaprio is from the World Institute for Development Economics Research at the United Nations University and Silke Trommer is from the Centre of Excellence in Global Governance Research at the University of Helsinki.

[1] Ochieng, C. (2007) “The EU ACP Economic Partnership Agreements and the Development Question: Constraints and Opportunities Posed by Article XXIV and SDT Provisions of the WTO” Journal of International Economic Law 10(2), 363-394.

[2] Diouf, El Hadji (2008) “L’Article XXIV du GATT et les conditions d’ouverture du marché ouest africain” Passerelles entre le commerce et le développement durable 9(5), 4-18.

[3] Art 16, 17 and 240 CARIFORUM EPA.

[4] Art 24.1 DSU.

[5] Art 213.3 CARIFORUM EPA.

[6] Art 40 CARIFORUM EPA.