The wto-minus Strategy: Development and human rights under wto law

3. Human rights impacts of development strategy constraints imposed under WTO law

3.1 WTO law

The WTO speaks proudly of the fact that the 1995 agreements have added greatly to the extent of trade liberalisation originally brought about under GATT 1947. While GATT 1947 (as amended) continues to apply as a general source of law regulating trade in goods, many of the new agreements now regulate specific aspects of trade in goods, such as trade in agricultural goods, methods for customs valuations and the use of technical standards for traded products.⁸¹ Where there is inconsistency between the terms of GATT 1947 and those of a later WTO agreement, the latter prevails to the extent of the inconsistency.⁸² The central principle of WTO law is that trade is to take place in a ‘non-discriminatory’ trading system, a requirement which is made effective through two rules. The ‘like’ products of all Member countries are entitled to equally favourable treatment (the ‘most-favoured nation’ obligation) and Member countries may not favour their own products over ‘like’ imports (the ‘national treatment’ obligation).⁸³ International trade is greatly facilitated by this guarantee that “[e]ach country[‘s] … exports will be treated fairly and consistently in other countries’ markets,” and by [e]ach promis[ing] to do the same for imports into its own market.”⁸⁴

Transparency and predictability are also central principles of WTO law. Applying these principles, Member countries have identified tariffs as, by and large, the only permitted border barrier to imports, since tariffs are more transparent than other border barriers, such as discretionary import licensing systems, Tariffs have also been rendered predictable through the system of tariff ‘binding,’ under which Member countries are not permitted to raise tariffs above the published levels at which they have been bound.⁸⁵ Applying a further WTO law principle of fairness, a number of anti-competitive or inefficient practices are being phased out, including many subsidies and cumbersome customs procedures. Broadening its application beyond simple trade in goods, trade in services has been brought under WTO law (through a ‘positive list’ approach) and some common investment measures which act to restrict trade are now unlawful. The result of all this change, says the WTO,
“is assurance. Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use. Producers and exporters know that foreign markets will remain open to them. The result is also a more prosperous, peaceful and accountable economic world.”⁸⁶
The WTO has been seeking to build upon these results in the first round of new WTO negotiations since the Uruguay Round, the Doha Round, which commenced in 2001.⁸⁷ However, its path has not been straightforward, partly because of events which took place prior to the commencement of the Doha Round. Considerable community and developing country criticism had been levelled at the WTO in the late 1990s, particularly that WTO law and the WTO-Minus strategy favoured the interests of industrialised countries.⁸⁸ Responding to this, the Ministers at Doha launched the new trade negotiations as a ‘development round,’ agreeing to work on a set of issues which they presented as the Doha Development Agenda.⁸⁹ Issues put on the Doha development table included trade in agricultural products, trade and technology transfer, intellectual property rights and public health, and preferential treatment for developing country exports, amongst others. WTO law with regard to these has great capacity to affect human rights, such as the right to food, to a livelihood, to education and training, to medicines and, above all, to a process of development which facilitates, on a basis of equality, the realisation of human rights and fundamental freedoms for all.
Unfortunately, it is clear from events since 2001 that the WTO is experiencing considerable difficulty in achieving the trade and development outcomes it set for itself at Doha. While there are no doubt many reasons for this, the human rights perspective highlights two which are particularly penetrating. First, the broader and more equitable concept of development set out in the Doha Development Agenda is not easy to reconcile with the narrower, largely undifferentiating notion of development encapsulated in WTO law and the WTO-Minus strategy, based on the efficiency model. Secondly, even if WTO law and human rights law were to agree on the efficiency model approach to development, they would take different approaches to the ‘management’ of the changes which trade liberalisation brings about. Opening up to the global economy under WTO law, through reducing trade restrictions, is a transformative process which will produce winners and losers. Siddiq Osmani explains that, while the economic theory underlying WTO law is that trade will bring overall gains which will outweigh losses,
“… the gains and losses may not be distributed evenly across the population. … Evidence as well as common sense suggest that losses will be felt disproportionately more by the weaker segments of society. They would suffer more simply because they lack the flexibility to cope with the changing winds of market forces, owing to the various impediments they face in accessing new skills and resources….This is where the human rights approach to development can play a vitally important role.”⁹⁰

3.2 Constraints on fostering agricultural sectors

Tariffs and non-tariff barriers

Until 1995, the majority of protective barriers to foreign goods were imposed at countries’ borders and were most commonly tariffs, but also import quotas or various types of import licensing scheme. GATT 1947 favoured the use of tariffs over all other barriers, principally because they were considered the most transparent, they were fairly predictable and, while tariffs certainly rendered imports more expensive, they were not an absolute barrier to entry of goods. GATT 1947 implemented its preference for tariffs by prohibiting the use of non-tariff barriers, but it made an exception for agricultural goods.⁹¹ Seeking to correct this, the AoA introduced tighter regulation of non-tariff barriers to the entry of agricultural goods, requiring that they all be expressed as tariffs.⁹² There are few circumstances now in which WTO law permits the use of non-tariff barriers for any goods.⁹³ The prohibition on non-tariff barriers has not particularly affected the development strategy options of ordinary developing countries, the governments of which have traditionally preferred (government revenue-generating) tariffs. In any event, an exception is given in the AoA under which ordinary developing countries which had previously used non-tariff barriers may continue to use them to protect local producers of “a primary agricultural product that is the predominant staple [such as rice or maize] in the traditional diet of a developing country Member.”⁹⁴

Although tariffs are still used extensively by ordinary developing countries, both to support the economic viability of rural communities and to raise government revenue, they have been brought down to lower levels over time.⁹⁵ It is not usually WTO law as such which obliges countries to reduce their tariffs on particular products or to reduce them by specified margins; reductions are more often negotiated separately during trade Rounds. Nevertheless, there is continual pressure on all Member countries to reduce and bind tariff rates wherever possible. The tariffs set by ordinary developing countries are now bound on almost three quarters of the goods they import, including agricultural products.⁹⁶ However, the bound tariffs of ordinary developing countries tend to be set higher than their actual rates,⁹⁷ giving them some scope to raise tariffs at times when they want to protect sensitive products or industries and to keep prices stable. Tariffs are only permitted to be raised above the bound rates in very limited circumstances: when action is taken against ‘dumping’ (generally, imports coming in at a price below the cost of production) (see below), when countervailing tariffs are imposed to offset certain foreign subsidies or when temporary emergency measures are introduced to limit imports in the face of a potentially damaging imports surge. In any other case, compensation will be payable.⁹⁸ As a result of this restriction, many ordinary developing countries have safeguarded their tariff flexibility by retaining high bound rates for staple or important agricultural products.⁹⁹
Despite this, the system of negotiating reductions in agricultural tariffs and of binding the reduced rates may act as a constraint on the development strategy options of ordinary developing countries and may work against the realisation of human rights and fundamental freedoms. Whether or not reductions will have this effect may depend on the extent of liberalisation previously undertaken by them and on the proportion of their populations dependent on agriculture for livelihood. Many ordinary developing countries have a predominance of poor or small farmers, and those which have previously reduced agricultural tariffs substantially or for particularly sensitive products, such as food staples, may be vulnerable to developmental damage if they have to bring their bound tariffs down yet further.¹⁰⁰. This will occur when the produce of such farmers becomes more expensive than imported equivalents, when the viability of the small farmers is dependent on tariff protection. If poor and small farmers are unable to sell their produce through local markets, not only will they and their families suffer greater poverty but the economic foundation of many rural communities will be depleted.
A study by the FAO in 2000 of the Sri Lankan experience illustrates how this may happen. Sri Lanka is an ordinary developing country in which
“[a]lmost 75 percent of the population is still classified as rural, which for all intents and purposes means mainly engaged in agriculture, given the economic linkages generated by agriculture in the rural economy.”¹⁰¹
In the early 1990s, Sri Lanka bound all its agricultural tariffs at 50 percent but its actual rate on most agriculture commodities remained at 35 percent. The FAO study concluded that, given the impact already of competitive imports on the domestic agricultural sector,
“any further reduction of the bound tariffs is likely to create difficulties.... Alternative employment opportunities in agriculture or elsewhere are limited. While tariff reductions may be welfare-increasing [for consumers] in the short run, …, the longer-run effects can be perverse in welfare terms, through the virtual elimination of domestic output.”¹⁰²
The exceptions mentioned above, permitting countries to raise tariffs above the bound levels when acting against dumping, foreign subsidies or an import surge, might be of temporary assistance in mitigating damage caused by artificially cheap produce. However, the exceptions do not address the greater concern, that lower bound agricultural tariffs may cause permanent displacement of local production and increased poverty in existing rural economies.
Yet the Doha Round negotiations have reached a consensus that bound agricultural tariffs will be reduced by an average of at least 33 percent for ordinary developing countries.¹⁰³ The countries have responded, in part, by presenting a group of proposals which would enable them to give higher, flexible tariff protection to particularly sensitive or special products, such as food staples, based on the three criteria of food security, livelihood security and rural development needs.¹⁰⁴ The debates which this group of proposals has sparked make evident a number of underlying tensions in WTO law and the WTO-Minus strategy. The Chair of the WTO Committee on Agriculture, Ambassador Falconer, while allowing in principle for the possibility of certain products being designated as “special,” expressed consternation that the proposal could “render the whole discussion on [Special and Differential Treatment] … completely redundant,” because it would enable a typical developing country to bring well over ninety percent of the value of its import trade within the listing.¹⁰⁵ Ambassador Falconer is clearly concerned that the Special Products proposal will reverse the liberalisation thrust of WTO law and the WTO-Minus strategy.
Ordinary developing countries, on the other hand, have taken a development perspective and are concerned to retain some capacity to raise and lower tariffs for products which they consider central to their (particularly rural) development. The special or sensitive products proposals suggest that the agricultural tariff reduction and binding expectation within the WTO-Minus strategy will only be borne with for so long as it does not actually constrain this capacity. Now that the negotiations are seriously threatening their ability to raise agricultural tariffs for development purposes, ordinary developing countries are voicing their disagreement. The fact that developing countries have so far been able to keep some bound rates relatively high may well have been masking a deep disagreement with the thrust of the WTO-Minus strategy as the most appropriate development strategy. As the special or sensitive products proposal makes clear, ordinary developing countries want to retain the flexibility to raise agricultural tariffs for protectionist purposes as a legitimate development strategy option.
In arguing for the right to raise agricultural tariffs, ordinary developing countries seem to be arguing for a return to the spirit of the GATT 1947 arrangement of non-reciprocity, which applied not only to tariffs but to all border barriers. A non-reciprocal arrangement would enable developing countries to benefit, in developmental terms, from the greater trade openness of industrialised countries while still having the right to protect and nurture their own industries, for developmental purposes. However, some trade economists have expressed strong opposition to any suggestion that the more industrialised developing countries, in particular, should be allowed to avoid reciprocity, pointing out that a number of ‘developing’ countries now perform better in terms of GDP per capita than do some OECD members.¹⁰⁶ At the very least, the industrialised countries insist upon a system under which developing countries must “graduate” away from Special and Differential Treatment as their economies strengthen.¹⁰⁷
More generally, most industrialised country Members are opposed in principle and for reasons of self-interest to non-reciprocity other than for LDCs and particularly vulnerable ordinary developing countries. They have criticised the special or sensitive products proposal as enabling ordinary developing countries to ‘free ride,’ that is, to enjoy unfairly the benefits of tariff reductions by the industrialised countries on numerous important products without having to reciprocate. The agricultural economist, Timothy Josling, is critical in general of Special and Differential Treatment as “encouraging countries to delay opening [to the global economy, which] may be perpetuating asymmetries [between rich and poor countries], rather than reducing them.”¹⁰⁸ He also accuses it of placing the WTO “under significant stress,”¹⁰⁹ by progressively weakening the most-favoured nation principle of non-discrimination. The disagreement raises squarely the fundamental question of whether WTO law should ‘differentiate’ by giving ordinary developing countries a wider repertoire of development strategy options than industrialised countries, including options which run counter to liberalisation and the efficiency model. The UN High Commissioner for Human Rights has expressed concern about the failure of the Agreement on Agriculture to do just that. She regards this as a human rights issue because it has important development implications:
“At the heart of adopting a human rights approach to the liberalisation of agricultural trade is the issue of whether a ‘one-system-fits-all-approach’ is appropriate. The agricultural sector plays starkly different roles in the development of every country. In the case of low-income countries, the agricultural sector plays an essential role in ensuring food security and alleviating poverty…. For developed countries, the agricultural sector is often less significant…. The application of the same rules to widely different populations and conditions without effective affirmative action for the poor risks exacerbating existing inequalities.”¹¹⁰
It would be a mistake, however, to assume that the simple solution would be to go ahead with the proposed agricultural tariff reductions by all Member countries but to encourage them to provide “social safety nets” to compensate “losers … from [the] trade-liberalisation side effects.”¹¹¹ As mentioned above, the issue is not only the protection of those whose human rights are negatively affected by trade liberalisation but also the ability to continue to produce in ways, such as small farming, which might be too inefficient to survive in a global market but which, nevertheless, facilitate the realisation of human rights and freedoms. While human rights law would obviously consider safety nets to be essential in the face of such change, their existence cannot make suitable a trade-driven development strategy which is offhand about the realisation of human rights and fundamental freedoms. Agricultural production is at the heart of food security, and the challenge for the majority of ordinary developing countries is ensuring regular access to adequate food. For many, their development strategy is geared not towards reducing their (inefficient) local food production and turning to imports but, on the contrary, “to rais[ing] agricultural productivity and food production in line with their needs and potential.”¹¹² Further agricultural tariff reductions are more likely to hinder than to support this development strategy; they are more suited to the development strategies of industrialised countries, which have largely urban populations employed in manufacturing or other non-agricultural industries and which are grappling with a problem of continual overproduction in agriculture.
It would also be a mistake not to acknowledge the key role higher tariffs may play in development. Even apart from their role in protecting small farmers and supporting rural communities, tariffs are a valuable source of government revenue in the majority of developing countries. This is an entirely legitimate fiscal approach, particularly given the difficulty of collecting income tax where large informal sectors exist. Revenue from tariffs will contribute to the capacity of governments to fund other facets of development, such as health and education, and will to their capacity to redistribute wealth throughout communities. At present, there are virtually no mechanisms within WTO law for redistribution for purposes of equity, the only possible exception being GATT article XIX which allows barriers to be raised temporarily in the face of certain kinds of imports surge.
Steering a trade liberalisation process which does not exacerbate inequality or cause retrogression but, on the contrary, respects, protects and promotes human rights and freedoms, will require a comprehensive capacity on the part of low-income, largely agrarian countries to shield socially- and economically-vulnerable local producers and communities from the negative consequences of the process. From the human rights perspective, if ordinary developing countries are to seize development gains from opening up to global trade, they will require a wider repertoire of development strategy options than they are currently permitted under WTO law and the WTO-Minus strategy. This is because the ability to control the speed, emphasis and nature of the liberalisation process, through the use of trade barriers, is essential to being able to control the impacts on individuals, sectors and communities and to ensuring equity.
WTO law and the WTO-Minus strategy have yet to come to terms with the fact of these differences of perspective. Although WTO law repeatedly differentiates between industrialised, developing and least-developed countries, the reasoning behind the differentiation is far from clear. This is particularly evident in the virtual exclusion of LDCs from WTO law commitments. Article XI of the WTO Agreement explains that LDCs “will only be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities.” One is left wondering how, in this context, the relationship between the WTO law obligations of an LDC and its development needs is to be evaluated, what body of knowledge or research supports the introduction of a consistency test for this purpose and what factors are to be considered relevant in administering such a test. No doubt textual statements of this kind are partly a result of the political and diplomatic nature of trade law negotiations, reflecting compromises and trade-offs rather than theoretical coherence. No doubt, too, the statement is intended as an acknowledgement that trade liberalisation may sometimes have to be delayed until particular development ‘ingredients’ are in place.¹¹³ Unfortunately, both the writings of trade lawyers and WTO statements about the reasoning behind the concessions in special and differential treatment tend to focus more on arguments about the benefits of trade liberalisation to economic development, rather than to provide a solid explanation for the concessions.¹¹⁴
Yet as WTO negotiations proceed towards deeper trade liberalisation and the depth of acceptance of the WTO-Minus strategy by the Members is increasingly tested, the lack of clear theoretical underpinning for differentiated treatment will almost certainly become a very tangible problem. Demands by ordinary developing countries to be allowed to vary their agricultural tariffs as they consider best for their food security, livelihood security and rural development needs are likely to draw antagonistic and theoretically incoherent responses from industrialised country Members, particularly as India, China and Brazil consolidate their economic development.

Agricultural domestic subsidies and structural supports

The AoA is the principal WTO treaty regulating agricultural subsidies.¹¹⁵ The AoA permits the continued use of agricultural subsidies but, in the years immediately after its introduction in 1995, it required that those which stimulated production be reduced in value and quantity. Some domestic subsidies commonly used by ordinary developing countries were included in the reductions, while others have now become open to challenge if they nullify or impair benefits which would otherwise accrue to another Member country.¹¹⁶ Domestic subsidies are government payments to producers to support the prices or incomes they receive. Ordinary developing countries have not been great users of agricultural domestic subsidies, so that the restrictions on their use have had only a peripheral impact.¹¹⁷ However, agricultural domestic subsidies have a legitimate position in the repertoire of development strategy options which ought to be available to ordinary developing countries, where they could assist with building up productive sectors in poor rural communities and with increasing overall food production. Marketing boards and similar supports may also assist by providing greater income stability for small farmers enabling equitable food distribution. However, such supports are at risk of violating the national treatment rule of GATT art. III by discriminating against imports.

Dumped agricultural produce

A particular development problem for farmers in ordinary developing countries is the fact that some agricultural products from (mainly) industrialised countries, primarily the US and EU,¹¹⁸ are sold on world markets at artificially low prices (‘dumped’), due to the fact that ‘export subsidies’ have been paid to the agricultural producers. Export subsidies are government payments to domestic producers which are conditional upon goods being exported. They are obviously intended to give the producers an artificial advantage in foreign markets. Although the AoA required agricultural export subsidies to be reduced after 1995, they are still permitted, still in use and still very substantial. From a development perspective, they enable artificially cheap agricultural produce to enter and damage local markets in ordinary developing countries, undercutting farmers and impoverishing rural communities. Bryan Mercurio observes that,

“the countries of the Ivory Coast and Burkina Faso perfectly illustrate this situation, as both nations had healthy cattle industries until the EC dumped beef into their markets and not only undermined but also destroyed domestic production.”¹¹⁹
From an efficiency model perspective, export subsidies prop up inefficient industries and grossly distort markets.¹²⁰ The 2005 Hong Kong Ministerial Declaration expressed the hope that agricultural export subsidies would be phased out by 2013.¹²¹ At the time of writing, the Doha Round negotiations had not yet concluded any firm agreement on the problem of agricultural export subsidies in industrialised countries. The EU has made clear that its agreement to any phasing out is conditional on other countries, particularly the US, phasing out "all export measures with equivalent effect" over the same period of time.¹²² Given this, it seems unlikely that agricultural export subsidies will be phased out in the near future.
More than one writer has made the point that agricultural export subsidies operate as a kind of special and differential treatment for industrialised countries¹²³ and both trade economists and human rights advocates support banning their use by industrialised countries. However, from a human rights perspective, their potential use in agriculture should be seen as a legitimate development strategy option for ordinary developing countries. These arguments are developed in 3.3, below, and apply equally to agriculture and manufacturing.