South Korea and the ‘developing country’ saga at the WTO

Last week, South Korea announced that it will no longer identify itself as a ‘developing country’ at the World Trade Organization (the “WTO”). The decision appears to stem from the US criticism of the current self-declaration regime of development status at the WTO and on the multilateral trading system more generally. This post analyses the position under the major WTO Agreements in relation to special and differential treatment (“S&DT”) provisions and the implications of South Korea’s move for other developing countries.

Special and differential treatment at the WTO

In negotiating trade concessions and increasing market access, WTO members have often had to deal with a tension at the heart of the system. On the one hand, a fundamental principle of the multilateral system is non-discrimination: granting certain concessions or treatment to one state should entail equal treatment of all other WTO members. On the other, WTO members have increasingly recognised that not all of their trading partners start from an equal position: there is merit in recognising the particular needs and historical disadvantages faced by developing countries. The WTO Agreement, recognises this, noting in its preamble that increased market access should be achieved “in a manner consistent with [member states’] respective needs and concerns at different levels of economic development”. 

In light of this, the WTO classifies its members into three categories: (i) developed countries, (ii) developing countries, and (iii) least developed countries (“LDCs”). While LDC status is conferred by the United Nations (Article XI.2 of the WTO Agreement), there is no specific criterion for the designation of a member as a developing country. In many situations, each WTO member can itself decide whether it is a developing country by virtue of the principle of “self-selection” (or “self-election”). Notably, the criteria for classification of members may be found in text of the covered agreements (for instance, the SCM Agreement stipulates a threshold of GNP per capita of $1,000 per annum to determine developing country status) or be determined with reference to World Bank criteria (for least developed countries). Both developing countries and LDCs are granted flexibilities for the implementation of their obligations under the WTO Agreements.

S&DT provisions in the WTO Agreements include: (i) provisions aimed at increasing the trade opportunities of developing country members; (ii) provisions under which WTO Members should safeguard the interests of developing country members; (iii) flexibility of commitments, of action, and use of policy instruments; (iv) transitional time periods; (v) technical assistance; and (vi) provisions relating to LDC members. 

In 2018, the Committee on Trade and Development at the WTO computed the total number of S&D provisions contained in the WTO Agreements at 155.

US proposal

Earlier this year, the US circulated a position paper entitled “An Undifferentiated WTO: Self-Declared Development Status Risks Institutional Irrelevance” which advocated the removal of the self-declaration of developing countries. It argued that this mechanism prevents “true liberalisation” and is no longer relevant in light of the “great development strides” of recent decades. Further, the US took exception to the flexibilities that are afforded to developing countries. The paper concluded that the self-declaration mechanism poses a serious threat to the WTO: “Self-declaration and its first-order consequence — an inability to differentiate among Members — puts the WTO on a path to failed negotiations. It is also a path to institutional irrelevance, whereby the WTO remains anchored to the past and unable to negotiate disciplines to address the challenges of today or tomorrow, while other international institutions move forward.”

The US later proposed that the following categories of Members would not be able to avail themselves of S&DT provisions: membership of or acceding to the OECD, membership of the G20, classification as a “high income” country by the World Bank, or share in global merchandise trade exceeding 0.5 per cent. The draft proposal does not preclude “reaching agreement that in sector-specific negotiations other Members are also ineligible for special and differential treatment”.

As expected, many developing countries, including China, India, South Africa and Venezuela made a formal submission to the WTO resisting the US proposal and stressing the continued relevance of S&DT provisions in light of the goal of inclusiveness and fairness of the WTO. They drew on economic data to establish the development divide between the developed and developing world and the capacity constraints on developing members. The submission also sought to draw other members’ attention to wider issues facing the WTO, including the “proliferation of WTO-inconsistent protectionism and unilateralism, the blockage of Appellate Body member selection process and the impasse of the Doha Development Round” as threats to the multilateral trading system. 

In July 2019, the Trump administration released a memorandum which essentially issued an ultimatum to states which, in its view, inappropriately self-declare as developing countries. It threatened to take unilateral action against those which continued to do so. The move from South Korea is believed to be a result of this and other pressure from the US.

South Korea and S&DT provisions

South Korea has historically invoked provisions of the Agreement on Agriculture in particular when calculating its domestic support reduction commitments and seeking longer implementation timeframes for the removal of export subsidies. South Korea also negotiated a longer implementation period for providing market access in rice trade as a primary agricultural product that is the predominant staple in the traditional South Korean diet. As South Korea used its S&DT provisions mainly to safeguard its interests in the agricultural sector, it may expect some domestic backlash in response to this decision. In future agreements containing S&DT, it will not be able to do so.

Comment

The US proposal is not the first time that developed countries have raised objections (albeit in a more modest manner) to the unconditional self-declaration of developing country status at the WTO. In September 2018, seemingly as a pre-emptive response to the US proposal, the EU and Canada had released reports on WTO reform which advocated an ad-hoc, conditional and temporary application of S&DT.

South Korea’s move may put pressure on other WTO developing country members including India, Brazil and Indonesia to re-think their status. The most significant of these is, of course, China. 

Written by Alex Fawke and Sagar Gupta of Linklaters 
Edited by the Linklaters Trade Practice. The views and opinions expressed here are the personal opinions of the author(s) and do not necessarily represent the views and opinions of Linklaters.