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UNIVERSITY OF CAPE TOWN
School for Advanced Legal Studies
THE LIBERALIZATION OF TRADE IN AGRICULTURAL
PRODUCTS BETWEEN ACP COUNTRIES AND THE
EUROPEAN COMMUNITY UNDER THE WTO REGIME
Submitted By
OBALE OFFAH AKO
OBLOFF001
FEBRUARY 2005
SUPERVISOR: PROFESSOR D. J. DEVINE
Research dissertation presented for the approval of Senate in fulfillment
of part of the requirements for the degree of Master of Laws of the
University of Cape Town in approved courses and minor dissertation.
The other part of the requirement for this degree was the completion of a
programme of courses.
I hereby declare that I have read and understood the regulations
governing the submission of Master of Laws dissertations, including
those relating to length and plagiarism, as contained in the rules of this
University, and that this dissertation conforms to those regulations.
DEDICATION
To my mother Bridget Obale, for her unfailing support and patience.
To my sisters, Agbor and Ayuk, for always reminding me about the responsibilities of
an older brother.
To Nkongho, though a young brother, you are far wiser than your age.
To Professor Chuma Himonga, a ‘genuine educator’.
‘…yet not I, but the grace of God that was with me’.
I Corinthians 15:10
TABLE OF CONTENTS PAGE
ACKNOWLEGEMENTS
INTRODUCTION 1
CHAPTER ONE: RELEVANT PRINCIPLES
I.1) The theory of Comparative Advantage and Gains from Trade…………. 5
I.2) Most – Favoured – Nation Principle and National Treatment………….. 7
I.3) Reciprocity……………………………………………………………… 8
CHAPTER TWO: THE GLOBAL TRADING SYSTEM
II.1) The General Agreement on Tariffs and Trade (GATT)………………… 9
II.2) GATT’s Legal Principles……………………………………………….. 11
II.3) World Trade Organization………………………………………………. 12
II.4) The Structure of the WTO……………………………………………… 13
II.5) The WTO as a Subject and Source of International Law………………. 15
II.6) The Dispute Settlement Understanding (DSU)………………………… 17
II.7) ACP Countries and the WTO Dispute Settlement System…………….. 20
CHAPTER THREE: TRADE IN AGRICULTURE
III.1) Treatment of Agriculture: from GATT to the WTO…………………… 23
III.2) The Common Agricultural Policy……………………………………… 24
III.3) The Agreement on Agriculture………………………………………… 25
III.4) The Continuous use of Export Subsidies……………………………… 27
III.5) Doha Development Round…………………………………………….. 29
CHAPTER FOUR: DEVELOPING COUNTRIES
IV.1) Special and differential treatment………………………………………. 32
IV.2) 1979 Decision on Differential and More Favourable Treatment
for Developing Countries (Enabling Clause)……………………………. 34
IV.3) Developed, Developing and Least – Developed Countries………………. 35
IV.4) The Legal Implications of the Enabling Clause in Relation of Trade
in to the Liberalization Agricultural Products………………………….. 37
IV.5) WTO Mechanisms and Legal Implications for ACP and EC trade……… 41
IV.5A) Regional Trade Arrangements and Free Trade Areas………………….. 41
IV.5B) Rules of Origin………………………………………………………… 43
IV.6) The ACP – EC arrangement……………………………………………... 44
IV.7) The Need for Change: Pressures on Lomé……………………………… 46
IV.8) The Banana Dispute……………………………………………………. 47
IV.9) The Implications of the Banana Dispute on ACP – EC
Agricultural Trade……………………………………………………… 50
IV.9A) Economic Partnership Arrangements (EPAs)……………………….. 50
IV.9B) The New Trade Framework………………………………………….. 51
IV.9C) EPAs and Everything but Arms Initiative (EBA)……………………. 53
CHAPTER FIVE: LIBERALIZATION
V.1) Eliminating EC Export Subsidies………………………………………. 55
V.2) The Sugar Dispute………………………………………………………. 57
V.3) Customs Union versus Free Trade Areas……………………………….. 59
CHAPTER SIX: MODEST PROPOSALS
VI.1) Improved Market Access……………………………………………….... 64
VI.2) Special and Differential Treatment……………………………………... 65
VI.3) The Role of ACP Government………………………………………….. 68
VI.4) The Debt Problem and the Doctrine of
Odious Debts……………………………………………………………. 68
VI.5) Rules of Origin………………………………………………………….. 69
VI.6) Use of Safeguards Measures and Countervailing Duties……………….. 70
VI.7) Authoritative Interpretation…………………………………………….. 71
VI.8) Compensation………………………………………………………….. 73
CONCLUSION……………………………………………………………… 74
BIBLIOGRAHPY
ACKNOWLEDGEMENTS
I am particularly indebted to my supervisor, Professor Devine for his kind assistance
and guidance.
Many thanks to my friend Eleanor.
BIBLIOGRAPHY
1) Bernhardt, R., (ed), Encyclopedia of Public International Law, Vol. II, III
(Amsterdam: Max Planck Institute, 1992).
2) Bhagwati, Jagdish N., Free Trade Today (Princeton, N.J.: Princeton University
Press, 2002).
3) Brownlie, I., Principles of Public International Law (Oxford; Oxford
University Press, 1998).
4) Dam, Kenneth W., The GATT: Law and International Organization (Chicago:
University of Chicago Press, 1970).
5) Desta, Melaku G., The Law of International Trade in Agricultural Products
(The Hague; New York: Kluwer Law International, 2002).
6) Franck, Thomas M., Fairness in International Law and Institutions (Oxford:
Oxford University Press, 1995)
7) Jackson, John H., The World Trading System: Law and Policy of International
Economic Relations (Cambridge, Mass.: MIT Press, 2000).
8) Jackson, John H., Davey, William J., Sykes, Alan O., Legal Problems of
International Economic Relations 4th ed (St. Paul, Minn: west Group, 2002).
9) Hudec, Robert E., Essays on the Nature of International Trade (London:
Cameron May, 1999).
10) Krugman, Paul R. and Obstfeld, M., International Economics Theory and
Policy 6th ed. (Boston: Addison-Wesley, 2003).
11) Lowenfeld, Andreas L., International Economic Law (Oxford: Oxford
university Press, 2002).
12) Ricardo, D., The Principles of Political Economy and Taxation 2nd ed
(London: Murray, 1817).
13) Rudin, J., Odious Debt (Cape Town: Alternative Information and
Development Centre, 2000).
14) Samuelson, Paul A., Economics 13th New York: McGraw-Hill, 1989)
15) Shearer, Ivan A., Starke’s International Law 11th ed (London: Butterworths,
1994)
16) Smith, A., An Inquiry into the Nature and Causes of the Wealth of Nations
(first published in 1776; 6th ed by Edwin Cannan).
17) Trebilcock, Michael J., Howse, R., The Regulation of International Trade
(London and New York: Routledge, 1995).
JOURNAL ARTICLES
1) Bertelsmann, T., ‘Trade integration in South Africa’, (1998) 6 (1) South
African Journal of International Affairs.
2) Bhagwati, Jagdish N., Panagariya, A., ‘The theory of preferential trade
agreements: historical evolution and current trends.’ (1996) Vol. 86(2)
American Economic Review.
3) Brenton, P., ‘Integrating the least developed countries into the world trading
system: the current impact of European preferences under “Everything but
Arms” (2003) Vol.37 (3) Journal of World Trade.
4) Brenton, P., and Manchin, M., ‘Making EU trade agreements work: the role of
rules of origin’ (2003) Vol. 26 (5) The World Economy.
5) Carmody, C., ‘Remedies and conformity under the WTO Agreement’ (2002)
Vol. 5 (2) Journal of International Economic Law.
6) Clark, H., ‘The WTO banana dispute settlement and its implications for trade
relations between the United States and the European Union’ (2002) Cornell
International Law Journal.
7) De La Rocha, M., ‘The Cotonou Agreement and its implications for regional
trade agenda in Eastern and Southern Africa’ (2003) Policy Research Working
Paper 3090 (World Bank, Washington, DC).
8) Fasan, O., ‘Global trade law: challenges and options for Africa’ (2003) Vol.47
(2) Journal of African Law.
9) Garcia, F., ‘Beyond special and differential treatment’ (2004) 27 Boston
College International and Comparative Law Review.
10) Gerrick, R., ‘The Cotonou Agreement: will it successfully improve the small
island economies of the Caribbean?’ (2004) Vol.27 Boston College
International and comparative Law Review.
11) Gravelle, M., and Whalley, J., ‘Africa and the Uruguay Round’ (1996) Vol.6
Transnational Law & Contemporary Problems.
12) Hart, M., Dymond, B., ‘Special and differential treatment and the Doha
“Development” Round’ (2003) Vol. 37 (2) Journal of World Trade.
13) Harlen, Margerum C., ‘A reappraisal of classical economic nationalism and
economic liberalism’ (1999) Vol. 43 (4) International Studies Quarterly.
14) Kofele-Kale, N.,‘The principle of preferential treatment in the law of GATT:
toward achieving the objective of an equitable world trading system.’(1987-
88) Vol. 18 California Western International Law Journal.
15) Krueger, Anne O., ‘Are preferential trading arrangements trade-liberalizing or
protectionist?’ (1999) Vol. 13(4) Journal of Economic Perspectives.
16) Low; P., ‘Developing countries in the multilateral trading system: the insights
of Robert E. Hudec’ (2003) Vol. 37 (4) Journal of World Trade.
17) Marongwe, M., ‘African Countries and the WTO Dispute Settlement System’.
18) McRae, D., ‘What is the future of WTO Dispute Settlement’ (2004) Vol.7 (1)
Journal of International Economic Law.
19) Ng’ong’ola, C., ‘Regional integration and trade liberalization in the Southern
African Development Community’ 2000 Vol. 3 (3) Journal of International
Economic Law.
20) Panagariya, A., ‘EU preferential trade arrangements and developing countries’
(2002), Vol. 25(10) The World Economy.
21) Panagariya, A., ‘Developing countries at Doha’ (2002) Vol. 25(9) The World
Economy.
22) Raustiala, K., ‘Rethinking the sovereignty debate in international economic
law’ (2003) Vol. 6(4) Journal of International Economic Law.
23) Schiff, M., ‘Regional integration and development in small states’ (2002)
Policy Research Working Paper 2797 (World Bank, Washington, DC).
24) Steinberg, Richard H., and Josling, Timothy E., ‘When the peace ends. The
vulnerability of EC and US agricultural subsidies to legal challenge’ (2003)
6(2) Journal of International Economic Law.
25) Sykes, Alan O., ‘The persistent puzzles of safeguards: lessons from the steel
dispute’ (2004) 7(3) Journal of International Economic Law.
26) Sykes, Alan O., ‘Comparative advantage and the normative economics of
international trade policy’ (1998) Vol. 1 Journal of International Economic
Law.
27) Thomas, Rosalind H., ‘The WTO and Southern African trade relations’ (1999)
Vol.3 (1) Law, Democracy, and Development. Journal of the Faculty of Law
of the University of the Western Cape.
28) Voitovich, S. A., Normative acts of international economic organizations in
international law-making’, (1991) Vol. 24 (4) Journal of World Trade.
29) Winters, L., ‘Regionalism versus multilateralism’ (1996) Policy Research
Working Paper 1687 (World Bank, Washington, DC).
30) Zhang, R., ‘Food security: food trade regime and food aid regime’ (2004) 7(3)
Journal of International Economic Law.
WEBSITES
http://www.unctad.org
http://www.wto.org
http://www.tralac.org
http://www.europa.eu.int
http://www.oxfam.org
http://www.worldbank.org
http://www.acp.int
1
INTRODUCTION
Since 1947, the General Agreement on Tariffs and Trade (GATT) and its successor, the
World Trade Organization (WTO) has brought about a decline of tariffs to near de
minimis levels.1 However, trade in agricultural products has remained the general
exception to multilateral trade rules. Trade in this sector is hindered through quantitative
restrictions and export quotas permitted under prevailing trade rules, through specific
derogation in the form of waivers, and through downright violation of established trade
rules in the form of export subsidies. Developed countries are the prime users of such
measures to the detriment of developing countries.
The treatment of agriculture remains amongst the most controversial aspects of the
world trading system.2 The focus of this dissertation is on the liberalization of trade in
agricultural products between the European Community (EC) and African, Caribbean,
and Pacific Countries (ACP). Central to this dissertation are the prospects for ACP
countries now required under the Cotonou Agreement of 2000 to negotiate reciprocal free
trade arrangements with the European Union called Economic Partnership Agreements
(EPAs) by no later than 2008. It seems this is a process that must be done under the WTO
rules-based trade regime. It should be emphasized that the EC was ‘seated’ at GATT
meetings from 1960 and became a member of the WTO at its inception.
It follows that I will look into the historical treatment of the agricultural sector under
GATT, the reforms that were introduced in the Uruguay Round, and the additional
reforms sought by the developing and least developed countries in the current Doha
Round of trade negotiations.
My goal is to crystallize the issues that must be resolved if ACP participation in the
multilateral trading system is to be enhanced. Questions that arise include to what extent
are the preferences and interests of ACP countries reflected in the rules of the global
economic game? Can these countries truly and fully enjoy the benefits of a rules-based,
multilateral trading system which flow from an increased access for their agricultural
1 Global average tariffs of trade in industrial goods have progressively fallen from above 40 per cent to below 4 per cent. 2 Reasons given for the special treatment of agricultural trade involve the vagaries of nature, food security, and culture.
2
products in western markets? Or would ACP countries’ preferential access to European
markets be weakened by the ongoing trade negotiations leading to the formation of
EPAs? To what extent do these international rules and standards adequately reflect the
interests, needs, and priorities of ACP countries? Moreover do ACP countries adequately
participate in determining these rules?
What are the current debates surrounding the liberalization of trade in agricultural
products? Should agricultural products be treated (i.e. liberalized) in the same way as
industrial products, or should special considerations apply?
The European Common Market in the 1960s developed its Common Agricultural
Policy (CAP).3 CAP has become a massive complex of agricultural subsidies that have
been described as a complex web of price and sales guarantees, high tariff barriers,
subsidies, production support and the use of export subsidies that largely insulate
farmers’ income from market forces. Agricultural workers in the developing countries
cannot compete in the global agricultural market because EC subsidies to European
farmers undercut the economies of some of the world’s poorest nations, including ACP
countries. According to UNCTAD, the US$350 billion paid in subsidies to OECD
countries’ agricultural workers ‘amount to twice the value of developing country
exports’.4 Studies reveal Sub- Saharan Africa could see annual trade gains of US$ 3.3
billion if rich nations ended their farm support.
Debates and disputes over the existing trade rules in agriculture are most commonly
portrayed as being between developed and developing countries. This is however not an
3 The Treaty of Rome of 1957, which established the European Economic Community, states in Article 38(1)-(4) that "the common market shall extend to agriculture and trade in agricultural products" and also provides for "the establishment of a common agricultural policy among the Member States." The Treaty specifies five broad objectives of the common agricultural policy: (a) to increase agricultural productivity by promoting technical progress and by ensuring the rational development of agricultural production and the optimum utilization of the factors of production, in particular labour; (b) thus to ensure a fair standard of living for the agricultural community, in particular by increasing the individual earnings of persons engaged in agriculture; (c) to stabilize markets; (d) to assure the availability of supplies; (e) to ensure that supplies reach consumers at reasonable prices. The Treaty also allows coordinated vocational training, research, and education, and joint financing of projects, institutions, and product promotion as part of the CAP. (Art. 41). 4 UNCTAD Press Release, TAD/INF/PR/9916 of 1st September 1999 available on http://www.unctad.org (accessed on 30 November 2004).
3
accurate depiction of the identity and interests of the affected parties. The determining
factor is the position of developing and least developed countries in the WTO in relation
to the special measures that have been adopted by developed countries following the
adoption of the so-called ‘enabling clause’, as well as specific waivers that have been
granted to allow preferential market access to goods originating from certain developing
countries.
Relations between the EC and ACP countries are at a historic turning point. It is
believed the result of EPA negotiations will be a fully liberalized agricultural trade. The
issue is who will be the main beneficiaries of liberalized agricultural trade. In other words
which group of nations amongst the advanced developing countries, developing countries
and least developed countries will emerge as the main exporters of the liberalized
products? More specifically, will the end of EC subsidies benefit ACP countries?
As barriers to agricultural trade come down, so will the margin of preference in ACP-
EU preferential trade arrangements be reviewed. It seems that ACP farmers could emerge
as an unexpected casualty because of their incapacity to conform to supply side issues
such as infrastructure and access to credit.
Furthermore it is argued that man’s ingenuity could raise other barriers to free
agricultural trade such as less transparent regulatory policies. Possibly food hygiene and
safety regulation could replace more conventional barriers such as tariffs.5 The more
advanced developing countries will possibly be better placed to overcome such barriers.
The focus of this dissertation is upon the role of economic relations in the international
legal system characterised by the central role of the WTO and its implications most
particularly on the trade between the EC and ACP countries. The mechanisms and
policies of the WTO will be assessed in the light of how they affect the development of
ACP countries towards an effective integration in world trade. Attention will also be paid
to legitimacy in the decision-making processes in the WTO. The overall aim of trade
liberalization is to raise ‘standards of living’ and ‘ensuring full employment’ leading to
enhanced economic growth. The question that obviously arises is whether this can be said
5 A Panagariya, ‘The tide of free trade will not float all boats’ Financial Times, August 3, 2004.
4
to be the situation in ACP countries comparatively and in relation to their trade with
Europe.
Chapter one of my dissertation is a synopsis of the major concepts and theories that
have been proposed as the rationale for international trade. While an understanding of
these basic economic theories relating to international trade is not essential to a study of
the law governing international economic relations, some general exposure to these
concepts is helpful. Chapter two is on the General Agreement on Trade and Tariffs
(GATT) and its successor the World Trade Organization (WTO). Focus will be placed on
the structure of the WTO, the WTO as a source and subject of international law, its
dispute settlement mechanisms, and the role played by ACP countries in the development
of WTO jurisprudence. Chapter three is an analysis of the treatment of trade in
agricultural products from GATT to the WTO and the EC’s Common Agricultural
Policy, the contentious issues surrounding EC agricultural subsidies, and finally the
recent developments in the Doha Round of multilateral trade negotiations.
Global trade today is dominated by preferential trade arrangements as illustrated by the
ACP-EC trade arrangement. This is the subject of chapter four which deals particularly
with the significance of these arrangements in world trade under the WTO regime. The
issues raised in chapter five involve determining the actual beneficiaries of a full
liberalization of trade in agricultural products. Will the developing and least-developed
countries reap equal benefits from such liberalization? Finally chapter six is a proposal of
ways to enhance ACP-EC trade in agricultural products under the WTO regime for the
mutual benefits of both groupings.
5
CHAPTER ONE: RELEVANT PRINCIPLES
I. 1) The Theory of Comparative Advantage and Gains from Trade.
Adam Smith6 studied the shortcomings of the mercantilist system of the 16th century
where the goal of nations was to amass gold and silver.7 He concluded that this only led
to war and shortages. He observed that for world trade to expand, each country should
specialize in producing only that which it produces best -that which it has an absolute
advantage in. This became known as the theory of absolute advantage.
David Ricardo8 built on this theory by studying the question regarding trade between
two countries if one of them does not have an absolute advantage in the production of any
of the goods. He came up with the theory of comparative advantage illustrated by the
example of England and Portugal.9 However, Ricardo argued that trade was still
mutually advantageous, assuming full employment in both countries: when England
exported to Portugal the cloth produced by the labour of 100 men in exchange for wine
produced by the 80 Portuguese, she imported wine that would have required the labour of
120 Englishmen to produce. As Portugal, she gained by her 80 men’s labour cloth that it
would have taken 90 of her labourers to produce. Both countries will be rendered better
off through trade. The basic idea is that specialization will lead to efficiencies in the
production of goods at a lower cost.
6 In one of his often-quoted paragraphs, Adam Smith wrote the following: ‘What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry employed in a way in which we have some advantage’. A Smith, An inquiry into the nature and causes of the wealth of nations, (first published in 1776; 6th ed. by Edwin Cannan, Methuen & Co Ltd 1950) Book IV 478. 7 J H Jackson, W J Davey, and A O Sykes, Legal problems of international economic relations 4th ed (St. Paul, Minn: West Group, 2002) In order for nations to maximize national power, the aim was ‘to sell more to strangers yearly than we consume of theirs in value’ 435. 8 D Ricardo, The principles of political economy and taxation 2nd ed ( London: Murray, 1817) 9In his example England could produce a given quantity of wine with the labour of 120 men. It could also produce a given quantity of cloth with the labour of 100 men. Portugal in turn could produce the same quantity of cloth with the labour of 90 men and the same quantity of wine with the labour of 80 men. Thus, Portugal enjoyed an absolute advantage over England with respect to the production of both cloth and wine, that it could produce a given quantity of cloth or wine with fewer labour inputs than England.
6
Economic theorists have exposed some of the fundamental weaknesses in Ricardo’s
theory. In the first place it does not represent a real world situation made up of more than
two countries and the production of more than just two products. Secondly it deals with
only one factor of production, which is labour, ignoring differences in technology and
other factor endowments such as land and capital. Furthermore, the theory did not raise
the possibility that a given government can deliberately create ‘comparative advantage’.10
The popular term for such government measures is ‘industrial policy’.11
Another school of thought known as the public choice theorists holds that trade policies
of governments are determined through a political process whereby ‘demandeurs’
(voters) of government policies exchange political support in terms of votes, campaign
contributions etc for desired policies. 12 Government policy makers will in turn supply
policies that maximise the governing party’s prospects of re-election.13
The theory of comparative advantage nevertheless continues to form the basis of
conventional international trade theory today.14 Central to this theory is the objective of
reducing barriers that might otherwise be imposed by governments on transactions which
cross national borders and so frustrate comparative advantage. Thus negotiations aimed at
reducing obstacles to freer trade will benefit all sides. It is argued that specialization
which follows from the theory of comparative advantage will make possible increases in
global production of goods without concurrent increases in the resources devoted to their
production.15 The goal then of all multilateral trade negotiations ought to be minimizing
government regulation in international trade.
10 Jackson et al, op.cit. at 13. 11 Ibid. 12 M J Trebilcork and R Howse, The regulation of international trade (London and New York: Routledge, 1995) 14. 13 Ibid. 14 However when it comes to the trade of agricultural products it is suggested that Ricardo had implied in his works that ‘agriculture is different’ and ‘must be treated differently’ as an exception to the theory of comparative advantage .See M G Desta, The law of international trade in agricultural products (The Hague; New York: Kluwer Law International, 2002) 5. Restrictive and protective measures permitted under the GATT for agricultural products will be developed further in this dissertation. Suffice at this point to note that in multilateral trade negotiations, agricultural products are often considered special and often beyond the scope of trade discipline. 15 A O Sykes, ‘Comparative advantage and the normative economics of international trade policy’ (1998) No. 1 Journal of International Economic Law at 61. Sykes however argues that trade may not in fact lead each nation to consume more of everything. It also does not follow that enhanced consumption opportunities in a trading nation make every individual better off.
7
I. 2) Most-Favoured-Nation Principle and National Treatment
Most-Favoured-Nation principle (MFN) means treatment not less favourable than that
extended by the granting state to any third state.16 In effect each country provides equal
conditions of access in its own markets to all trading partners with whom it has an MFN
agreement. In return it enjoys equal treatment with competitors in all the export markets
where it has MFN standards by agreement. The MFN treatment has a direct bearing on
the rules of conduct which govern world trade. This is in line with the view that the
intention of the MFN clause is to ‘establish and maintain at all times fundamental
equality without discrimination among all of the countries concerned’.17
It is however questionable whether the MFN principle can attract general rules of
international law. Fitzmaurice argues that
‘… the most-favoured-nation clauses do not in principle and indeed cannot
of themselves include or attract the general rules of international law at all.
It is neither their normal purpose to do so nor are they framed in such a way
to accomplish it. …the true purpose of the most-favoured-nation clause
between two countries(call them ‘A’ and ‘B’) produces no effect as between
them until one of them grants some favour or advantage to a third country,
‘C’. That is what most-favoured-nation treatment implies. Now if ‘B’
merely promised ‘C’ to treat the subjects of ‘C’ in accordance with
international law, that would be no favour at all, and therefore would not
constitute a grant to which the most-favoured-nation clause could attach
itself’.18
In contrast to the MFN principle, the national treatment obligation requires a nation
to treat goods, services or capitals which have entered its internal economy in the
same way as it treats such matters when they are produced, owned or controlled by
its own citizens.19 Like the MFN principle, national treatment is a non-
16 Endre Urstor, ‘Most-Favoured-Nation Clause’, in: R. Bernhardt (ed), Encyclopedia of Public International Law, Vol. III (1992) at 468. 17 Rights of Nationals of the United States in Morocco (France v. United States), ICJ Reports (1952) at 192. 18 Ambatielos Case (Greece v United Kingdom), I.C.J reports, (1953) at 403. 19 J H Jackson, ‘Economic law, International’ in: R. Bernhardt (ed), Encyclopedia of Public International Law, Vol. II (1992) at 29.
8
discriminatory obligation, but imposed at the national level. This supposes that
there is a minimum standard required by international law in the treatment of
foreign nationals’ investments by the host state. For instance the prompt, adequate,
and effective compensation whenever property is expropriated; regardless of how
nations treat their own citizens.20
I. 3) Reciprocity
The concept of reciprocity in essence entails that countries in opening their markets to
each other are bound by mutual levels of concessions undertaken. Each country can
derive additional economic advantages from trade liberalization if it can persuade its
trading partners also to liberalize their trade policies in the same manner. The concept of
reciprocity is synonymous with non-discrimination. It is a needed concept needed in
international trade if governments are to avoid ‘beggar-thy-neighbour policies’ which are
only destructive of world trade.21
Though the concept of reciprocity is marginal in the classical economy theory of trade,
it is very important in understanding the new trade arrangements between the EC and
ACP countries.
20 Ibid. 21 Trebilcock and Howse, op. cit. at 7.
9
CHAPTER TWO: THE GLOBAL TRADING SYSTEM
II. 1) THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)
The present international trade environment is a direct result of the Second World War
and the economic practices that preceded the War. These practices included the use of
exchange controls, competitive currency depreciation and a host of other protective and
discriminatory devises particularly the hyper-protectionist Smoot Hawley Act passed by
the United States Congress in 1934.
The American Secretary of the Treasury, in his closing statement as chairman of the
Bretton Woods Conference summed it all up:
I take it as an axiom that after this war is ended no people and therefore
no government of the people will again tolerate prolonged and
widespread unemployment. A revival of international trade is
indispensable if full employment is to be achieved in a peaceful world
and with standards of living which will permit the realization of men’s
reasonable hopes.
What are the fundamental conditions under which commerce among
the nations can once more flourish?
First, there must be a reasonably stable standard of international
exchange to which all countries can adhere without sacrificing the
freedom of action necessary to meet their internal economic problems.
This is the alternative to the desperate tactics of the past – competitive
currency depreciation, excessive tariff barriers, uneconomic barter deals,
multiple currency practices and unnecessary exchange restrictions – by
which governments vainly sought to maintain employment and uphold
living standards. In the final analysis, these tactics only succeeded in
contributing to world – wide depression and even war.22
22 A Lowenfeld, International economic law (Oxford: Oxford university Press, 2002) 501.
10
In July 1944 therefore, even before the end of the war, representatives of 44 nations
came together in Bretton Woods, New Hampshire and agreed on a plan for the post – war
international economy. The Bretton Woods Conference created two permanent financial
organizations; the International Monetary Fund (the IMF) and the International Bank for
Reconstruction and Development (the World Bank), both designed to have universal
membership, based on contributions of resources by all members. The World Bank
would be devoted to long – term economic development, though its immediate priority
was the reconstruction of European countries ravaged by the war. The IMF would enable
states to achieve financial stability with growth.
A third institution more concerned with the reduction of obstacles to trade, the
International Trade Organization,23 never came into existence and the more ‘provisional’
General Agreement on Tariffs and Trade fulfilled this function.24 The overall aims
therefore of the financial institutions put in place just after the Second World War are full
employment, freer and expanding trade, and stable exchange rates. The basic notion
being a global trade regime designed to ensure fairness in international trade.
The GATT it should be noted was never an organization25 and it provisionally remained
for most of its fifty years in existence as just a General Agreement dealing almost
entirely with trade in products. Member states parties to the General Agreement were
described as CONTRACTING PARTIES to GATT 1947.26
23 For a more detailed history of the demise of the International Trade Organization see J H Jackson, The world trading system: law and policy of international economic relations (Cambridge, Mass.: MIT Press, 2000) 35-41. 24 The General Agreement on Tariffs and Trade was drafted at the Geneva Conference of April 1947 simultaneously with work on the ITO charter. Partly because the United States tariff agreement authority was expiring in the middle of 1948 and partly because an ITO charter would not have been ready by then, twenty-two countries signed a ‘Protocol of Provisional Application’ (PPA) in late 1947 implementing the GATT as a treaty obligation under international law which became effective on January 1, 1948. It was thought that after the ITO charter came into force, the PPA would be abandoned and the General Agreement would be applied definitely. However, when support for the ITO faded in the United States, following the decision of the American executive not to re-submit the ITO charter to Congress for approval, the ITO died a natural death. Ibid at 39. 25 J H Jackson, op. cit at 42 describes the fact that the GATT was never an organization as a fiction. This is because it had all the features and performed the functions of an international financial institution. In his words ‘the GATT by any fair definition must be deemed to have been a de facto international organization’. 26 Expressed in caps to signify the Contracting Parties acting jointly under the GATT Agreement. See GATT, Article XXV.
11
II. 2) GATT’s Legal Principles
The entire GATT system is founded on three legal pillars. The GATT memorandum
states that one of the fundamental provisions of the General Agreement is equality of
treatment. This is established in the first place by an unconditional MFN clause which is
one of the provisions of GATT establishing the rule of non-discrimination in trade
between nations.27 Secondly the national treatment obligation, which requires that
imports be treated the same as the like domestic product insofar as taxes and other
domestic regulations are concerned.28 The third is transparency which requires that any
trade protection be obvious and quantifiable in a schedule of multilaterally negotiated
tariff concessions. The Schedules annexed to the General Agreement are made an
integral part of the Agreement. This is the so-called tariffication.29 This provides for a
stable and predictable basis for trade through negotiated ‘bindings’ at fixed minimum
levels.30 Bindings are a legal guarantee that tariffs will not be increased above the
maximum tariff level. The core rationale for the GATT system therefore is to open
markets
The MFN principle in the GATT is, however, substantially restricted by numerous
exceptions. First, an importing country facing a balance-of-payments deficit may
temporarily impose quantitative restrictions on imported goods until its balance-of-
payments position improves.31 Included also in this category are measures such as a
27 GATT, B.I.S.D. Vol. IV: GATT/1969-1 at 221. Paragraph 1 of Article I establishes general most-favoured-treatment as a rule governing trade among Contracting Parties to the GATT, ‘ with respect to customs duties and charges of any kind imposed on or in connexion with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to all rules and formalities in connexion with importation or exportation and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties’. 28 Article III of GATT 1947, ‘ The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use’. 29 GATT Article II (1) (a): ‘each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement’. 30 Kofele-Kale, ‘The principle of preferential treatment in the law of GATT: toward achieving the objective of an equitable world trading system.’(1987-88) Vol. 18 California Western International Law Journal at 292. 31GATT Article XII on Restrictions to Safeguard the Balance of Payments.
12
temporary tariffs and the imposition of quotas to prevent the introduction in a contracting
party’s commerce of any product produced in the territory of another contracting party at
less than its normal value.32 In addition there are general exceptions to the GATT
obligations necessary to enhance sanitary and health regulations found in Articles XX.
Finally in the group of exceptions are measures facilitating the development of customs
unions and free-trade areas.33
II. 3) WORLD TRADE ORGANIZATION
Multilateral trade liberalization has taken place through a process of numerous
negotiating rounds.34 The eight- year Uruguay Round of trade negotiations however
introduced profound changes in the world trading system. The results of the Uruguay
Round of negotiations were formally signed in Marrakesh, Morocco, on 15 April 1994
and the World Trade Organization came formally into being on 1 January 1995.35 The
WTO is now the principal global institution for international trade.
When the WTO replaced GATT, all of the GATT rules and its 47 years of precedents
were folded into the WTO (as it is often said, the GATT is dead, long live the GATT).
Therefore reference made in this dissertation to GATT 1994 must be understood to
incorporate the principles and practices of GATT 1947.36
The objectives of the WTO are, ‘raising standards of living, ensuring full employment
and a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services’.37
32GATT Article VI (2)(3) on Anti-dumping and Countervailing Duties. 33GATT Article XXIV. 34 There have been nine ‘rounds’ so far; Geneva 1947, Annecy 1949, Torquay 1950, Geneva 1956, Dillon 1960-61, Kennedy 1962-67, Tokyo 1973-79, Uruguay 1986-94. 35 Marrakesh Agreement Establishing the World Trade Organization, 15 April 1994; Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (hereinafter WTO Agreement) 33 I.L.M (1994) 1140-1153. 36 Indeed Article 16 of the WTO Agreement provides that ‘the WTO shall be guided by the decisions, procedures and customary practices followed by the CONTRACTING PARTIES to GATT 1947 and the bodies established in the framework of GATT 1947.’ In addition annex 1A to the WTO Agreement incorporates a document labelled GATT 1994 which is essentially GATT 1947 with amendments from the Uruguay Round. 37 Preamble to the WTO Agreement.
13
Three minimalist GATT principles continue through the WTO. These are the pillars on
which global trade is built. The first is trade without discrimination through the
application of the MFN clause: products traded among WTO members must receive the
best terms that exist in any bilateral trading agreement.38 The second is to the effect that
goods produced domestically and abroad must receive the same national treatment. This
entails equal access to markets.39 The third is binding commitments to reduce tariffs and
the elimination of quotas on imports.
One of the most impressive advances made in the Uruguay Round therefore has been the
most substantial cutting of tariffs.40
II. 4) The Structure of the WTO
The WTO Agreement is made up of four annexes; annex 1 contains the ‘Multilateral
Trade Agreements’ covering international rules on trade in goods, services, and
intellectual property rights which impose binding obligations on all member states.41
This is the so-called ‘single-undertaking’ approach. That is, membership in the WTO
requires accepting all the results of the Uruguay Round without exception with the
exclusion of the Plurilateral Trade Agreements which are binding on the members that
accept them, but create no obligations or rights for other members.
Annex 1A (the texts particularly those in Annex 1A include a number of ministerial
decisions and declarations, so that interpretation of the agreement must keep them under
consideration) consists of GATT 1994 and the vast ‘schedules of tariff concessions’,
annex 1B and 1C consist respectively of the General Agreement on Trade in Services
(GATS) and the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS).
Annex 2 has the dispute settlement rules with a legal text to implement procedures and
which are obligatory on all members. Annex 3 establishes the Trade Policy Review
Mechanism (TPRM), which enables the WTO to review the overall trade policies of each
member on a periodic basis. Finally, Annex 4 contains the ‘Plurilateral Trade
38 See FN 27. 39 See FN 28. 40J H Jackson, The World Trading System op. cit. at 3. 41 Article II (2) of the WTO Agreement.
14
Agreements’ which are optional. They deal with trade in civil aircraft and government
procurement.
The main decision-making body of the WTO is the Ministerial Conference composed
of representatives of all the Member states which meets at least once every two years.42
In effect however the main executive body of the WTO is the General Council composed
of representatives of all the Member states and the General Council meets as often as the
need arises.43 The General Council in discharging its responsibilities sits in different
capacities—as the Dispute Settlement Body, the Trade Policy Review Body. In addition
it acts at various times as a Council for Trade in Goods, a Council for Trade in Services,
and a Council for Trade-Related aspects of Intellectual Property Rights.
Decision-making in the WTO is by consensus in the Ministerial Conference and the
General Council, but when consensus cannot be achieved, decisions will be made on the
basis of the majority of the votes cast with each member having one vote.44
However when it comes to the waiving of an obligation under the WTO Agreement
and the Annex 1 Agreements, more complex procedures are required if consensus cannot
be achieved. The grant of a waiver requires an affirmative vote of three fourths of the
overall membership. In Annex 1 Agreements, the waiver request is to be submitted to the
relevant Council, which will submit a report to the Ministerial Conference.45 Any waiver
granted shall specify the exceptional circumstances justifying it and a termination date.46
Amendments to the WTO agreement in the absence of consensus require two third
votes of the overall WTO membership. If it has been determined that the amendment will
not affect member rights and obligations, it comes into force for all members at that time.
Other wise, amendments come into force only for those members accepting them, unless
by a three fourths vote of the overall WTO membership it is decided that if a member
does not accept the amendment it shall be free to withdraw or remain a member with the
permission of the Ministerial Council.47
42 Article IV (1). 43 Article IV (2). 44 Article IX (1). 45 Article IX (3). 46 Article IX (4). 47 Article X.
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II. 5) The WTO as a Subject and Source of International Law.
States traditionally are the main subjects of international law. However in the
Reparations Case48 the capacity of an international organization to be a holder of rights
and duties under international law was established. In this case the Court was asked for
an advisory opinion on the capacity of the United Nations to bring an international claim
in respect of injury to its personnel and in respect of injury to the United Nations caused
by an injury to its agents. The Court concluded that for an organization to achieve its
purposes, ‘the attribution of international personality is indispensable’. This personality
endows an international organization with particular rights and duties. Thus an
international organization is a subject of international law with the capacity to maintain
its rights by bringing an international claim.
The main source of law in international economic relations is primarily the treaty
creating the international financial institution. In international law rights (or duties) do
not exist in a vacuum. They are derived from rules (norms) of international law. These
rules are in turn derived from the sources of international law. These sources are
authoritatively stated in article 38(1) of the Statute of the International Court of Justice
(I.C.J), which provides as follows:
The Court, whose function is to decide in accordance with international law such
disputes as are submitted to it, shall apply:
(A) international conventions, whether general or particular establishing rules
expressly recognized by the contesting states;
(B) international custom, as evidence of a general practice accepted as law;
(C) the general principles of law recognized by civilized nations;
(D) subject to the provisions of Article 59, judicial decisions and teachings of the
most highly qualified publicists of the various nations, as a subsidiary means for
the determination of the rules of law
These rights (or duties) are therefore the result of applying the rules of international law
to a concrete factual situation. International conventions or treaties and international
48 Reparations Case, Adv. Op. [1949] I.C.J. Rep. at 174.
16
custom form what have come to be known as the primary or formal sources. These are
the law creating processes.
When parties accede to an international organization, the constituent treaty binds them.
Its constituent treaty in turn defines the mandate of the organization. Thus in his
dissenting opinion in the Reparation case49 Judge Hackworth observed; ‘Powers not
expressed cannot freely be implied. Implied powers flow from a grant of expressed
powers and are limited to those that are necessary to the exercise of powers granted’.
When an international organization therefore acts outside its defined mandate, it is
alleged to be acting ultra vires.
States by acceding to an international organization, delegate some of their decision-
making power to the institutions formed through their participation.50 States by
voluntarily consenting to the treaty do not therefore abandon their sovereign rights. They
still retain the capacity to regulate the activities of these international organizations
through the existing decision-making processes. This voluntary consent of states
therefore has nothing to do with infringements and limitation of the principle of the
sovereign equality of states which is often argued as the result of states acceding to
international organizations.51 It is suggested that this ‘restriction’ of the sovereignty of
Member states is the same procedure as what obtains when a state voluntarily restricts its
freedom of action when it enters into an international agreement with another state.52
The main source of law therefore in international economic relations is primarily the
treaty creating the financial institution. However these institutions in order to properly
function and fulfill the purposes laid down in the constituent treaty are endowed with
quasi-legislative powers which are used in the enactment of secondary decisions. A
unique phenomenon occurs when these decisions change the contents of the treaty
already concluded by the Member states. 53 The question has been asked whether such
decisions are a source of international law. It is proposed the answer should be in the
49 I Brownlie, Principles of public international law (Oxford; Oxford University Press, 1998) 693. 50 S A. Voitovich, ‘Normative acts of international economic organizations in international law-making’, (1991) Vol. 24 (4) Journal of World Trade at 28. 51 K Raustiala, ‘Rethinking the sovereignty debate in international economic law’ (2003) Vol. 6(4) Journal of International Economic Law at 842-844. 52 Brownlie, op. cit. at 691. 53 Voitovich, op.cit. at 29.
17
affirmative.54 It is however hard to see the legal basis for such a view in the case of
decisions which are ultra vires the mandate of the organization. This would seem to be a
rather erroneous interpretation of the principle pacta sunt servanda; ‘treaties and binding
decisions, taken by international economic organizations have to be fulfilled in good
faith by the parties concerned’.55
On the other hand, when decisions are intra vires the mandate of the organization, the
legal basis for their binding nature would be pacta. Such decisions cannot of course
include decisions taken beyond the authorized mandate of the organization. It is legally
impossible for such decisions to be binding, unless by consent of the member states.
In any case, Article VIII (1) of the WTO Agreement specifically provides that ‘the
WTO shall have legal personality, and shall be accorded by each of its Members such
legal capacity as may be necessary for the exercise of its functions’.
II. 6) The Dispute Settlement Understanding (DSU)
The DSU is the main WTO agreement on settling disputes. 56 It established the Dispute
Settlement Body (DSB-the General Council in another guise) with ‘the authority to
establish panels, adopt panel and Appellate Body reports, maintain surveillance of
implementation of rulings and recommendations, and authorize suspension of
concessions and other obligations under the covered agreement’.57
Dispute settlements in the WTO involve a three-stage procedure. The first is the
consultation stage requiring mediation or conciliation.58 The DSU emphasizes the
importance of consultations in securing dispute resolution, requiring a Member to enter
into consultations within 30 days of a request for consultations from another Member.
Next is the adjudicative stage which involves the composition of panels,59 their
deliberations, or when a review of a panel report is made to the standing Appellate
Body60 on issues of law covered in the panel report and legal interpretations developed
54 Ibid. 55 1986 Seoul Declaration of the 62nd Conference of the International Law Association. 56 Annex 2 to the WTO Agreement. 57 Article 2(1) of the DSU. 58 Article 4 of DSU. 59 Article 8 of DSU. 60 Article 17 of DSU.
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by the panel. The third stage is the implementation of decisions and remedies. It involves
the prompt compliance with DSB decisions through the surveillance of implementations
of recommendations and rulings.61
WTO dispute settlement is a compulsory and mandatory quasi-judicial process. In the
words of Article 38(1) (a), the rules of the DSU are ‘expressly recognized by the
contesting States’ that are parties to WTO dispute settlement. A WTO Member therefore
has a right to bring a case against any other member. By becoming a party to the WTO
Agreement, Members have accepted in advance the jurisdiction of the WTO dispute
settlement process. The DSU allows for the participation of any Member having a
substantial interest in a matter before a panel. This is referred to as third party
participation. Such a party shall have an opportunity to be heard by the panel and to make
written submissions to the panel.62 The WTO’s procedure for resolving trade quarrels under the DSU is vital for enforcing
the rules and therefore for ensuring that trade flows smoothly.63 Coupled with the duty of
States to conform to the findings of the DSB, the DSU has succeeded in doing what for
so long has been elusive in international law: they can authorize certain enforcement
measures.64 This is achieved through the negative or reverse consensus. This is an
ingenious device in which a panel or an Appellate Body report shall be adopted by the
DSB unless the DSB decides by consensus not to adopt the report.65
The WTO dispute settlement underscores the rule of law, and makes the trading system
more secure and predictable. It is for this reason that it is generally considered to be one
of the cornerstones of the multilateral trade order. Article 3(2) the DSU states that the
‘dispute settlement system of the WTO is a central element in providing security and
predictability in the multilateral trading system, preserving the rights and obligations of
Members under the covered agreements, and to clarify the existing provisions of those
agreements in accordance with customary rules of interpretation of public international
law’. 61 Article 21 of DSU. 62 Article 10 of DSU. 63 As of 30 November 2004, 321 cases had been brought to the DSB. See the disputes, chronologically, at www.wto.org (accessed on 30 November 2004). 64 C Carmody, ‘Remedies and conformity under the WTO Agreement’ (2002) Vol. 5 (2) Journal of International Economic Law at 307. 65 Articles 16 (4) and 17(14) of the DSU.
19
A substantial body of jurisprudence has emerged from the decisions of the panels and
the Appellate Body. There is no provision for stare decisis in the DSU. However, both
the panel and Appellate Body in arriving at their decisions have often taken into account
previous panel and Appellate Body reports. ‘Adopted reports are often considered by
subsequent panels. They create legitimate expectations among WTO Members and,
therefore, should be taken into account where they are relevant to any dispute. However,
they are not binding, except with respect to resolving the particular dispute between the
parties to that dispute’. 66 As a result, it is argued that it is impossible today to understand
the scope of the many obligations in the WTO Agreements without considering the way
those agreements have been interpreted through dispute settlement.67 The law, it seems,
is no longer in the agreements; it is in the decisions of the Appellate Body.68
The usual remedy in WTO dispute settlement is for the panel to recommend that the
offending measure be brought ‘into conformity’ with the WTO Agreement. The findings
of a panel and the conclusions of the Appellate Body are formally expressed in the form
of recommendations to the DSB, these decisions become binding on the parties to the
dispute on adoption by the DSB. The preferred outcome of WTO dispute resolution is a
settlement between the parties consistent with the treaty. Article 3(7) provides that a
‘solution mutually acceptable to the parties to the dispute and consistent with the covered
agreements is clearly to be preferred’. However, in the absence of an agreed solution,
then the measure found inconsistent with any of the covered agreement has to be
withdrawn. If this is not possible, the parties to the dispute can negotiate voluntary
compensation,69 normally in trade concessions so that the injured party has greater access
to the offender’s market.70 At the end of the spectrum, the last option is that the DSB can
66 See Japan –Taxes on Alcoholic Beverages, WT/DS1/AB/R, WT/DS10/AB/R, WT/DS22/AB/R (1 November 1996). 67 D McRae, ‘What is the future of WTO Dispute Settlement’ (2004) Vol.7 (1) Journal of International Economic Law at 5. 68 Ibid, at 6. 69 Article 22(1) of DSU ‘Compensation and the suspension of concessions or other obligations are temporary measures available in the event that the recommendations and rulings are not implemented within the reasonable period of time. However, neither compensation nor the suspension of concessions or other obligations is preferred to full implementation of a recommendation to bring a measure into conformity with the covered agreements. Compensation is voluntary and, if granted, shall be consistent with the covered agreements’. 70 C. Carmody, op. cit. at 308.
20
automatically authorize the injured party to retaliate by suspending concessions.71 A
party to the dispute may request authorization of the DSB to suspend concessions or other
obligations to the other party concerned. The DSB will grant such authorization within 30
days of the expiry of the agreed time-frame for implementation. Disagreements over the
proposed level of suspension may be referred to arbitration.72
The aim of WTO remedies: settlement, withdrawal, compensation, or retaliatory
suspension therefore is not to compensate the victim, but to induce the wrongdoer to
comply.73
Article 19 of the DSU sets out the limit of the panel and Appellate Body’s remedial
powers at ensuring conformity with the WTO Agreement. The typical form of the remedy
under DSU Art 19 remains a recommendation which provides:
1. Where a panel or Appellate Body concludes that a measure is inconsistent with a
covered agreement, it shall recommend that the Member concerned bring the
measure into conformity with that agreement. In addition to its recommendations,
the panel or Appellate body may suggest ways in which the Member concerned
could implement the recommendations.
2. In accordance with paragraph 2 of article 3, in their findings and
recommendations, the panel and Appellate Body cannot add to or diminish the
rights and obligations provided in the covered agreements.
II. 7) ACP Countries and the WTO Dispute Settlement System
ACP countries are generally not frequent users of the dispute settlement process. For
example as of January 2004, only two African countries, South Africa and Egypt, have
had consultations requested at the DSB.74 At the Appellate Body, no African country has
71 Notes on dispute settlement available at http://www.wto.org (accessed on 30 December 2004). 72 Article 22(6) of DSU. 73 C. Carmody, op. cit. at 309. 74 Disputes rulings by country available at http://www.wto.org/english/tratop_e/dispu_e/distabase_wto_members1_e.htm (accessed on 2 December 2004).
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ever participated as either a Complainant or a Respondent. Participation has been limited
to third party status.75
The absence of ACP countries in the WTO dispute settlement has some serious
implications. Firstly, if litigation under the DSU is commensurate with your trading
position, then it follows that ACP countries are not fully integrated into the multilateral
trading system. This means that their role and participation in the WTO is peripheral.76
Africa’s trade for instance accounts for only 2 per cent of global trade.
Secondly, the DSB plays a major role in interpreting the covered agreements. It
follows that it is playing a critical role in the development of WTO jurisprudence. It
seems that WTO practice and jurisprudence can only be developed by those who are
actively participating in the process. As an illustration most of the preferences negotiated
by ACP countries during the Uruguay Round have slowly been eroded by landmark
decisions in the DSB e.g. in the European Communities-Banana Dispute and the
European Communities-Generalized System of Preferences. These decisions will be
analysed in greater detail at a later stage in this dissertation. Suffice at this point to note
that a lack of participation means that WTO jurisprudence is being shaped in a manner
that does not take into account the peculiarities of the ACP countries in a special and
differential manner.
A number of reasons have been given about ACP countries lack of participation.
Firstly there is the identity of their major trading partners. Most ACP trade is tied to a
non-reciprocal trade arrangement with the EC. Such an arrangement has been described
as ‘favours’.77 ACP countries probably feel intimidated and thus do not challenge their
major trading partner in the DSB. In addition the requirement for consultation by the
DSU also means that issues of power politics in international relations may weigh heavily
on the relatively weaker ACP States.
75 ACP countries participated as third parties in the European Communities- Regime for the Importation, Sale and Distribution of Bananas (1997) World Trade Doc. WT/DS105 and also doing the same in the European Communities Sugar Challenge. 76 M. Marongwe, ‘African Countries and the WTO Dispute Settlement System’ available at http://www.tralac.org/newsletter/03aug2004.html (accessed on 2 December 2004). 77 Ibid.
22
Next the DSU is a confusing and expensive procedure for the ACP countries who are
also crippled by a shortage of international trade experts. It is estimated that the cost of
taking a challenge up to the Appellate Body is around US$500. 000.
Trade is very important for economic development. In addition, since DSU is such a
central part of WTO, the reasons for ACP non-participation must be detected and
resolved if the multilateral trading system is to be an engine for their development.
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CHAPTER THREE: TRADE IN AGRICULTURE
III. 1) TREATMENT OF AGRICULTURE: FROM GATT TO THE WTO78
The creators of GATT were motivated by two grand designs; that free trade be promoted
through multilateral tariff negotiations and that discrimination be eliminated by means of
the MFN principle. According to these designs, quotas79 as a means of barriers to trade
were to be increasingly eliminated giving way to the use of tariffs. As already mentioned,
‘tariffication’ is done in the GATT through binding customs duties on particular items in
the tariff schedules of individual contracting parties. Bound rates are then included in a
schedule of concessions which then become an integral part of the GATT.80 This fulfils
one of the main objectives of the multilateral trading system which is the creation of a
transparent and predictable trading environment. As a result therefore of the trade-
restrictive and distortive nature of quotas, they are expressly prohibited under GATT
Article XI.81
In addition another general measure used by governments to protect domestic users
from foreign competition viz; export subsidies was generally outlawed in the GATT.
Article XVI (2) provides that ‘contracting parties should seek to avoid the use of
subsidies on the export of primary products’. This acknowledges that export subsidies
have harmful effects on other contracting parties and only hinders the achievement of the
objectives of GATT. Although Article XVI does not eliminate the use of subsidies in
general, it however states in Section A that if it is determined that serious prejudice is
caused or threatened by any such subsidization to the interests of any other contracting
party, the contracting party granting the subsidy shall have to discuss with the parties
concerned the possibility of limiting the subsidization.
78 The term ‘agricultural product’ is not defined in the WTO Agreements. However, some tacit consensus has developed that the products falling under Chapters 1 to 24 in the Customs Co-operation Council Nomenclature could in principle be regarded as agricultural products (See Desta, op. cit at 37). 79 ‘Quotas’ are defined as a quantitative limit set by governments on the amount of allowable imports, and its expression may be in terms of either the value or the quantity of goods to be imported (See Desta, op. cit. at 29). 80 Article II (7). 81 Article XI (1) provides that ‘No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation or sale for export of any product designed for the territory of any other contracting party’.
24
Importantly too, Article 5 of the Agreement on Subsidies and Countervailing Measures
(SCM Agreement)82 provides that no Member should cause through the use of any
subsidy83
(a) injury to the domestic industry of another Member
(b) nullification and impairment of benefits accruing directly or indirectly to other
Members under GATT 1994 in particular the benefits of concessions bound under
Article II of GATT 1994
(c) serious prejudice to the interests of another Member.
Article 3 of the SCM Agreement generally prohibits the use of export subsidies described
as subsidies contingent, in law or in fact, upon export performance.84
In light of the above, the obvious question that arises is why these two particularly
protective measures (quotas and export subsidies) have been permitted in the case of
agricultural products. More so, why have these provisions not deterred countries from
applying other non-tariff measures as instruments of protectionism for their agricultural
industries?
In the first place it is argued that agricultural products have always been the object of
special treatment in world trade.85 The most important restrictions however on
international trade in agricultural commodities are non-tariff barriers, and a large
proportion of these are maintained in ‘blatant violation of the General Agreement’.86
III. 2) The Common Agricultural Policy
The mainstay of agriculture within the EC is the Common Agricultural Policy (CAP).
The CAP aims at providing community farmers with a floor price for their production
with the Community purchasing produce when prices fall below the floor price. It
emphasises direct payments to farmers as the best way of guaranteeing farm incomes,
food safety and quality. The CAP once accounted for nearly 70% of the EU budget. Now
82 The WTO Agreement on Subsidies and Countervailing Measures (SCM) in FINAL ACT, Annex 1 A. 83 Subsidies referred to in paragraphs 1 and 2 of Article 1 of the SCM Agreement. 84 Article 3(1) (a). 85 Desta, op. cit. at 7 explains the special treatment of agricultural products in world trade by quoting Paul Samuelson , ‘ agriculture may be the unlucky stepchild of nature, but it is often the favoured foster child of governments’. 86 K W Dam, The GATT: Law and international organization (Chicago: University of Chicago Press, 1970) 257.
25
it takes well under half as the EU has expanded other policies and curbed CAP
spending.87 This price support is covered by high external levies that aim at preventing
imports, which would otherwise occur owing to the EC price being above the world
market price. In other words, market access is restricted. These policies produce
excessive food surpluses within the EC. The surpluses are then dissipated by bringing the
products to the international market by way of export subsidies. The magnitude of the
intervention is sufficient to depress the world price.88
While the full benefits to ACP countries of a complete liberalisation of agriculture trade
will be developed at a latter stage in this dissertation, it suffices at this point to note that
most ACP countries definitely have a comparative advantage in this sector over European
states and stand to benefit from freer trade. Yet owing to the large subsidies and levies
provided in the EC, the world market share in agricultural trade of the ACP countries has
been dramatically reduced.89
III. 3) The Agreement on Agriculture
It was for this reason that it was felt necessary to find a solution to the problems of trade
in agricultural products during the Uruguay Round. It was stated that the negotiations
‘shall aim to achieve greater liberalization of trade in agriculture and bring all measures
affecting import access… under strengthened and more operationally effective GATT
rules and disciplines, taking into account the general principles governing the
negotiations, by improving market access through, inter alia the reduction of import
barriers; and improving the competitive environment by increasing discipline on the use
of all direct and indirect subsidies and other measures affecting directly or indirectly
agricultural trade...’90
87 Overviews of the European Union activities: agriculture available at http://www.europa.eu.int/pol/agr/overview_en.htm (accessed on 02 January 2005). 88 See Hilton Zunckel; ‘The rationale behind agricultural reform negotiations’ Tralac Working Paper, No 5/2004 available at http://www.tralac.org/pdf/wp-5-04%20AGR_REF_WPDAF.doc (accessed on 21 November 2004). 89 The European market accounts for 40 per cent of global distortion of agricultural commodity prices. The discontent with the European subsidies and levies is that a market of such magnitude exports food when it should be a net food importer. Countries that would otherwise service such imports are denied their comparative advantage. Ibid. 90 Ministerial Declaration on the Uruguay Round adopted in Punta del Este, Uruguay, on 20 September 1986, often referred to as the Punta del Este Declaration (quoted in Desta, op.cit. at 61).
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The result was the Agreement on Agriculture.91 Thus for the first time since the
creation of GATT in 1947 agricultural commodities are subject to the multilateral trading
rules. The main object is ‘the transition from a highly restrictive system, largely based on
non-tariff barriers, to a more open market access for agricultural products’.92 The aim
being to achieve binding commitments in three areas: market access,93 domestic support
(subsidies and other programmes including farmers’ incomes) and export competition.94
This was to be done in the form of the conversion of all non-tariff agricultural import
barriers into their tariff equivalents, including tariff quotas. Member states agreed to
convert their agricultural non-tariff barriers into tariffs, and to further bind the resulting
tariffs and lastly to undertake binding tariff reduction commitments. The advantage of
tariffication being transparency and predictability.
The requirement of tariffication ironically led to one of the problems limiting market
access for agricultural products, high tariff peaks, since tariff equivalents are set such that
the old levels of protection guaranteed by non-tariff barriers would now be guaranteed by
ordinary custom duties. This is the so-called ‘dirty tariffication’; tariffs are set at such
high levels that agricultural imports are still restricted as much as in the pre- Uruguay
Round days.95
Secondly, the Agreement on Agriculture has its own safeguard provisions,96 acting as
an exception to the market access provision. Under certain conditions, countries are
provisionally allowed to use non-tariff barriers to protect domestic producers in the face
of an influx of low-priced products.
Bearing in mind the particular needs and conditions of developing countries, Member
states agreed to make a provision for special and differential treatment of developing 91 WTO Agreement, Annex 1A (Multilateral Agreements on Trade in Goods). 92 European Communities- Regime for the Importation, Sale and Distribution of Bananas (1997) World Trade Doc. WT/DS105. 93 Article 4(2) provides that ‘Members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties....’ Such measures include quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing , non-tariff measures maintained through state-trading enterprises, voluntary export restraints, and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under the balance-of-payments provisions or under other general, non-agricultural –specific provisions of GATT 1994 or of the other multilateral Trade Agreements in Annex 1A to the WTO Agreement. 94 Ibid. 95 Desta, op. cit at 75. 96 Article 5.
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countries produce by providing for ‘a greater improvement of opportunities and terms of
access for agricultural products of particular interest to these Members’. Article 15(2)
states that ‘developing country Members shall have the flexibility to implement reduction
commitments over a period of up to 10 years. Least-developed country Members shall
not be required to undertake reduction commitments’. These countries were offered an
exemption from reduction commitments in domestic support, market access and export
subsidies.97 However it is not helpful to tell such a country that it can continue giving
subsidies to its farmers when the state itself has no resources with which to subsidise.
III. 4) The Continuous Use of Export Subsidies
It is important to note that the Agreement on Agriculture does not completely outlaw the
use of export subsidies and domestic support subsidies; rather Member states commit to
‘progressive reductions in agricultural support and protection.’98 Interestingly too, the
Agreement on Agriculture does not give any modalities as to the form and depth of the
commitments. Consider, further, Article 6 of the Agriculture Agreement, which deals
with domestic subsidies, and Article 9, which deals with export subsidies. These
provisions, characterized by complex terminology, discipline certain types of agricultural
subsidies to a very limited extent. Article 6 provides that the domestic support reduction
commitments of each Member contained in Part IV of its schedule, expressed in terms of
Total Aggregate Measurement of Support (AMS) and Annual and Final Bound
Commitment Levels, shall apply to all of its domestic support measures in favour of
agricultural producers. These are limited by certain exceptions which include product-
specific domestic support which would otherwise be required to be included in a
Member’s calculation of its current AMS where such support does not exceed 5 per cent
of that Member’s total value of production of a basic agricultural product during the
relevant year;99 and non-product-specific domestic support which would otherwise be
required to be included in a Member’s calculation of its Current AMS where such support
does not exceed 5 per cent of the value of that Member’s total agricultural production.100
97 Article 6(2). 98 Preamble to the Agreement on Agriculture. 99 Article 6(4) (a) (i). 100 Article 6(4) (a) (ii).
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In addition direct payments under production-limiting programmes shall not be subject to
the commitment to reduce domestic support if such payments are based on fixed area and
yields; or such payments are made on 85 per cent or less of the base level of production;
or livestock payments are made on a fixed number of head.101
In a nutshell, the Agreement on Agriculture has not in any way resolved the
controversial issues surrounding trade in agricultural products. Most ACP countries are
producers and exporters of agricultural products; a sector in which they have a
comparative advantage over their counterparts in the industrialized countries. It may have
been expected that there would be some lowering of tariffs at least on agricultural goods
from ACP countries to the developed countries. However, the irony is that agriculture
remains one of the heavily protected areas where the tariffs are high and domestic
producers enjoy heavy subsidy from the state in the developed world.102
Industrialized states’ farm subsidies lead to surpluses in agricultural production which are
dumped on world markets at artificially depressed prices. Export subsidies are used to
make exports artificially competitive. In a competitive market, it is argued, internally
supported prices can generally be sustained above world market prices only if import
competition is curtailed and, when surpluses occur, export assistance is provided.103 Thus
market access curtailment and export assistance underpin price support. It is this dynamic
that gives rise to trade distortion in that importers no longer buy the least costly goods of
the most efficient exporter, but instead purchase from whatever source can offer the
lowest price net of the government subsidy.104
On the other hand developing countries are required to open up their markets to such
unfair competition from industrialized country producers. It seems to me that the aim of
the WTO, which is to ensure freer trade, is not advanced when it comes to trade in
agricultural products.
101 Article 6(5)(a). 102 OECD countries’ annual farm subsidies stand at US$350 billion, amounting to twice the value of developing countries’ exports.
103 Zunkel, see FN 88. 104 Ibid.
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While some defend the practice of subsidies as an important instrument of domestic
economic policy for development, others argue that subsidies only shield inefficient
producers from competition.105 What is clear however is that the use of subsidies goes
against the very economic theory on which the whole GATT/WTO system is based: the
theory of comparative advantage. It is therefore not surprising that negotiations on the
further reforms of agricultural trade have been a central part in the current round of trade
talks.
It is simply because of the exception allowing the use of export subsidies which is a
gross violation of the provisions of GATT 1994 and the Agreement on Subsidies and
Countervailing Measures that the so-called ‘peace clause’106 was introduced in the
Agreement of Agriculture shielding a number of trade-distortive agricultural support
measures from the remedies of the DSU. The peace clause expired on 1 January 2004.
III. 5) Doha Development Round
The Doha Ministerial Declaration recognized ‘the long-term objective of the Agreement
on Agriculture to establish a fair and market-oriented trading system through a
programme of fundamental reform encompassing strengthened rules and specific
commitments on support and protection in order to correct and prevent restrictions and
105 Desta, op. cit at 99.
106 Article 13 entitled ‘Due Restraint’ provides that ‘[d]uring the implementation period, notwithstanding the provisions of GATT 1994 and the Agreement on Subsidies and Countervailing Measures (referred to in this Article as the “Subsidies Agreement”):
(a) domestic support measures that conform fully to the provisions of Annex 2 to this Agreement shall be:
(i) non-actionable subsidies for purposes of countervailing duties
(ii) exempt from actions based on Article XVI of GATT 1994 and Part III of the Subsidies Agreement; and
(iii) exempt from actions based on non-violation nullification or impairment of the benefits of tariff concessions accruing to another Member under Article II of GATT 1994, in the sense of paragraph 1(b) of Article XXIII of GATT 1994
30
distortions in world agricultural markets’.107 It was agreed that ‘special and differential
treatment for developing countries shall be an integral part of all elements of the
negotiations and shall be embodied in the Schedules of concessions and commitments
and as appropriate in the rules and disciplines to be negotiated, so as to be operationally
effective and to enable developing countries to effectively take account of their
development needs, including food security and rural development’.108
In order to advance the Doha agenda it became imperative that an agreement be
reached between the subsidization countries and the developing countries on the issue of
modalities for further commitments to reduce agricultural subsidies. Shortly after
midnight on 1 August 2004, the WTO’s 147 Member governments approved a package
of agreements that includes an outline (or ‘framework’) to be used to complete the
‘modalities’ on agriculture. This is the so-called July 2004 Framework.109
Annex A, the ‘Framework for Establishing Modalities in Agriculture’, gives the
underlying principles that will shape the modalities that will emerge from the next round
of negotiations.110 It underscores the level of ambition of the Doha Mandate, which is
cited at various points in the text. For example phrases such as ‘substantial reductions’
and ‘substantial improvements’ are used repeatedly.111 The text says the reforms in all
three pillars (market access, domestic support and export competition) form an
interconnected whole and must be approached in a balanced and equitable manner.
The framework includes a short paragraph on ‘monitoring and surveillance’. This will be
improved by amending Article 18 of the Agriculture Agreement, to ‘ensure full
transparency’, including prompt and complete notifications on market access, domestic
support and export competition.112
107 Doha Ministerial Declaration, WT/MIN(01)/DEC/1 (20 November 2001), paragraph 13. At the November 2001 Doha Ministerial Conference, the agriculture negotiations became part of the single undertaking in which virtually all the linked negotiations (services, industrial products, intellectual property, anti-dumping and other WTO rules issues, dispute settlement, and some trade and environment issues) are to be completed by 1 January 2005. 108 Ibid. 109 Doha Work Programme; General Council Decision WT/L/579 (2 August 2004). Available at http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd23_julypack_e.htm (accessed on 29 November 2004). 110 World Trade Doc.WT/L/579 at A-1. 111 Ibid. 112 World Trade Doc. WT/L/579 at A-7, paragraph 48.
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Critical as it is for the progression of the Doha Development Agenda (because of its
apparent focus on the developmental needs of developing countries); the Framework
nevertheless has some weaknesses: it describes key features of the modalities without
going into all the details. For example, it does not spell out the exact formulas to be used
and it does not include most of the figures that will eventually be used to determine
precisely how much reform is to be achieved.113
However, it seems to me that full integration of agriculture into the world trade system
still appears to be a long distance away.
113 See background notes to the July 2004 Framework available at http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd23_julypack_e.htm (accessed on 29 November 2004).
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CHAPTER FOUR: DEVELOPING COUNTRIES
IV. 1) SPECIAL AND DIFFERENTIAL TREATMENT
The classical economists hold that the free play of international economic forces lead to
the optimum expansion of trade and the most efficient utilization of the world’s
productive resources. Global trade is based on this premise. This entails non-
discriminatory trade which is reflective of the MFN principle. However it soon became
apparent that treating unequals (developed and developing countries) equally leads to
unjust results. This is the so-called ‘leveling the playing field’ argument.114 One school of
thought questions the validity of any trade agreement as soon as it no longer produces
equal advantages to all its parties. It sees such schemes as part of an erosion of the core
principles of the multilateral trading system.115 Others strongly contend that GATT
principles should apply equally only in trade relations between countries with equal
economic, social and environmental policies. This it is suggested is the only way to
ensure fairness in international trade. 116 A non-reciprocal preferential arrangement is said
to exist when one country offers access to exports originating from another country on
terms that are more favourable than the existing tariff, without requesting reciprocal
market access.117
In 1964, following efforts to increase the participation of developing countries in the
world trading system, a new chapter entitled ‘Trade and Development’, incorporated as
Part IV of GATT 1947,118 recognized for the first time the principle of non-reciprocity
which established differential treatment in favour of developing countries and eliminated 114 Oxfam Report, ‘Rigged rules and double standards: trade liberalization and the Fight against poverty’ (2002). Available at http://www.maketradefair.com (accessed on 29 November 2004) 115 P Low; ‘Developing countries in the multilateral trading system: the insights of Robert E. Hudec’ (2003) Vol. 37 (4) Journal of World Trade, 801- 811. Low summarises Hudec’s views against preferences in a succinct manner: ‘Hudec believes that an MFN-based regime is the only genuine protection available to developing countries. This is not just an argument he makes for advanced developing countries who are most susceptible to protection-driven discrimination, but for smaller countries as well that are likely to face more uncertainty and unpredictable elements of discrimination under multiple preferential agreements’. 116 R E Hudec, Essays on the nature of international trade (London: Cameron May, 1999) 11. He observes that ‘as long as trade policy continues to worship at the shrine of fairness, trade policy advocates will find it necessary to try to satisfy the relentless demand that trade is fair’. 117 World Trade Organization’s World Trade Report 2004 ‘Trade and Trade Policy Developments’ at 26. 118 Protocol Amending the GATT to introduce Part I on Trade and Development, GATT, B.I.S.D (13th Supplement) at 2 (1965).
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the mutuality of concessions principle enshrined in the MFN clause.119 The concept of
Special and Differential Treatment was thus introduced into the world trading system.
Part IV introduced three new articles. Article XXXVI lays down broad principles and
objectives recognizing ‘international trade as a means of achieving economic and social
advancement’120 for the less-developed contracting parties. It further states that the
‘developed contracting parties do not expect reciprocity for commitments made by them
in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-
developed contracting parties’.121
In Article XXXVIII, the CONTRACTING PARTIES agree through joint action to
‘provide improved and acceptable conditions of access to world markets for primary
products of particular interest to less-developed contracting parties’.
Part IV of GATT has been described as a symbolic gesture, 122of non-binding
statements imposing no concrete obligations on the industrialized countries towards the
less-developed world.123 Its fluid rhetoric language maintained preferential treatment for
the developing countries without stating specific commitments on the part of the
industrialized states.
119 Kofele-Kale, op. cit. at 291-333. 120 Article XXXVI (1) (e). 121 Article XXXVI (8). 122 Kofele-Kale, op.cit. at 298. 123 J H Jackson, The world trading system, op. cit. at 43.
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IV. 2) 1979 Decision on Differential and More Favourable Treatment for Developing
Countries (Enabling Clause) 124
As a result of criticisms that Part IV of GATT bestowed no rights that could lead to
enforceable legal claims, the Decision on Differential and More-Favorable Treatment,
Reciprocity and Fuller Participation of Developing Countries created in the GATT
system a permanent legal basis for preferences in favour of developing countries.125
The Decision provides that notwithstanding the MFN standard, ‘contracting parties may
accord differential and more favorable treatment to developing countries, without
according such treatment to other Contracting Parties’.126
It further gives developing countries the right to claim preferential tariff treatment in
developed countries’ markets in accordance with the Generalized System of Preferences
(GSP).127
Another area of application is regional or global arrangements entered into amongst
less-developed contracting parties for the mutual reduction or elimination of tariffs and,
in accordance with criteria or conditions which may be prescribed by the Contracting
Parties, for the mutual reduction or elimination of non-tariff measures on products
imported from one another.128
Although the benefits of preferences are difficult to quantify, studies show that possible
benefits of preferences to developing countries include better access to developed country
markets, increased export volumes and prices, improved economic welfare, more jobs,
and more rapid economic growth. The same studies however show that the welfare gains
are usually smaller than the preference margins.129
The Enabling Clause is however restricted by limitations on the use of preferential
treatment. Such preferential treatment shall be designed to facilitate and promote the
trade of developing countries and not to raise barriers to or create undue difficulties for
124 Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries Decision of 28 November 1979 (L/4903 GATT B.I.S.D. (26th Supplement) at 203 (1980). 125 R. Thomas ‘The WTO and Southern African trade relations’ (1999) Vol.3 (1) Law, Democracy, and Development at 106-110. 126 Paragraph 1 of the Enabling Clause. 127 In the GSP developed country tariffs are made to favour all developing countries. (See Hudec, op. cit. at 289). 128 Paragraph 2 of the Enabling Clause. 129 World Trade Organization’s World Trade Report 2004 ‘Trade and Trade Policy Developments’ at 29.
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the trade of any other contracting party. Secondly, it shall not constitute an impediment to
the reduction or elimination of tariffs and other restrictions to trade on a most-favoured-
nation basis.130
Lastly, there are very limited benefits to being a part of the GSP for the ACP
states.131 The GSP covers fewer products and excludes agricultural products whereas the
vast majority of the ACP states rely on the agricultural sector for their foreign trade.
IV. 3) Developed, Developing and Least-developed Countries
In WTO parlance, there is a distinction between developed, developing and least
developed countries. Almost all the WTO Agreements make reference to this distinction.
In fact the 1994 Decision in Favour of Least Developed Countries recognized the specific
needs of least developed countries in terms of preferential market access as an essential
means in improving their economies. The rationale for this division is in the application
of the principle ‘differential and more favourable treatment’. While for developing
countries its application is limited in time and scope, in the case of least developed
countries, the rule has indefinite application.132 For example, the Agreement on
Agriculture in its Article XV (Special and Differential Treatment) provides: (1) ‘In
keeping with the recognition that differential and more favorable treatment for
developing country members is an integral part of the negotiations, special and
differential treatment in respect of commitments shall be provided as set out in the
relevant provisions of this Agreement and embodied in the Schedules on concessions and
commitments’. And (2) ‘Developing country members shall have the flexibility to
implement reduction commitments over a period of up to 10 years. Least-developed
country members shall not be required to undertake reduction commitments’.
The rationale for this decision is that it is inequitable to treat all states alike in multilateral
trade arrangements considering the greater resource endowments of the developed states
in relation to the developing states.133 Developed countries do not expect reciprocity from
the developing countries for commitments made by them in trade negotiations with 130 Paragraph 3 of the Enabling Clause. 131 A Panagariya, ‘EU preferential trade arrangements and developing countries’ (2002), Vol. 25(10) The World Economy at 1418. 132 R Thomas, op. cit. at 109. 133 Ibid at 108.
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developing countries. Specifically, developing countries are not required to make
concessions that are inconsistent with their development, financial, and trade needs.134
There are 32 least-developed countries135 in the WTO and it is noteworthy that there
are no WTO definitions of ‘developed’ or ‘developing’ countries. Developing countries
in the WTO are designated on the basis of self-selection.136 It is understood and assumed
that as the share in world trade of any particular country increases, that country is
expected to ‘graduate’ out of the status of a developing country and therefore adopt full
reciprocity in its trading relations with developed countries.137 This means that whatever
favourable treatment is provided, it would diminish and disappear as countries develop.
The operation of this self-selection principle has led to some rather more advanced
developing countries claiming beneficiary status under the GSP.138 It is in an attempt to
limit the benefits of special and differential treatment for this group of advanced
developing countries thus rendering these benefits time-bound and confined in scope to
the group, that the WTO makes the above-mentioned distinction.139
The attempt to divide developing countries in this manner has however been described
as unconvincing and discriminating unfairly against developing countries, which while
not qualified as ‘least-developed’,140 are nevertheless so poor as to require treatment
which favours them over advanced developing countries.141 This leads to inequitably
distributed preferences.
134 Paragraph 5 of the Enabling Clause. 135 Angola, Bangladesh, Benin, Burkina Faso, Burundi, Central African Republic, Chad, Democratic Rep. of Congo, Djibouti, Gambia, Guinea Bissau, Rep. of Guinea, Haiti, Lesotho, Madagascar, Malawi, Maldives, Mali, Mauritania, Mozambique, Myanmar, Nepal, Niger, Rwanda, Senegal, Sierra Leone, Solomon Islands, Tanzania, Togo, Uganda, Zambia. Available at http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm (accessed on 29 November 2004). 136 Ibid. 137 Paragraph 7 of the Enabling Clause. 138 Kofele-Kale, op. cit. at 301-302. 139 R Thomas, op.cit. at 109. 140 Ibid. 141 An anomaly is created in international trade when, as R Thomas puts it, all nations that do not have a per capita GNP of under US$1000 or in other words are not least developed, are treated as though they are equal. The absurdity of this distinction is illustrated when one considers the example that it places a country like Swaziland on an equal footing with a country like Singapore. And as such a measure of reciprocity is expected from Swaziland’s trade with the developed world. Ibid.
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IV. 4) The Legal Implications of the Enabling Clause in Relation to the
Liberalization of Trade in agricultural Products.
The Enabling Clause raises a number of legal issues. The first question that arises is
whether special and differential treatment has evolved as an accepted norm of
international economic law.142 This is proposed by some scholars. 143 Others point out
that preferential treatment has no place in a framework of world trade based on the
concept of non-discrimination and free trade. It is argued that tariffs that discriminate
between foreign suppliers cause a misallocation of resources by inducing a shift of
resources toward those relatively less efficient producers who are favoured and away
from those more efficient producers who are disfavoured.144
This view requires some qualification in relation to the distinction made between
developing and least-developed countries in the WTO. The issue is whether special and
differential treatment is to be directed to all developing countries? Or do the least
developed countries require even more differential treatment than that given to other
developing countries, including the more advanced developing countries?
The view held in this dissertation is that there is a need to secure firmly as a legal
principle, the right to preferential treatment as a permanent feature of the world trading
system. This view is developed from a study of GATT/WTO jurisprudence analyzed at a
later stage.
A further cause for concern is the complexity of the GSPs.145 This discriminates in
favour of the more advanced developing countries which have the capacity to satisfy
142 This school of thought is influenced by the visions of the New International Economic Order. The New International Economic Order comprises a set of three instruments passed by the United Nations’ General Assembly: The Declaration on the Establishment of a New International Economic Order, G.A Res. 3201(S-VI)(1974); the Programme of Action on the Establishment of the New International Economic Order, G. A. Res. 3202(S-VI)(1974); and the Charter of Economic Rights and Duties of States. 143 See Kofele-Kale, op. cit. at 298. 144 Hudec, op. cit at 285. 145 Following the GATT practice of the ‘binding’ of tariffs in a schedule of concessions, the contracting parties are obligated not to raise a bound duty beyond the level agreed upon. However, preferential imports under the GSP system are subject to quantitative restrictions imposed on either the volume or the value of the product entitled to access at a preferential rate. Preferential tariffs are not bound as MFN tariffs. (See Kofele-Kale, op. cit. at 301).
38
complicated requirements. Studies reveal that over three fourths of the GSP trade can be
accounted for by a dozen advanced developing countries.146
It is in this light that it seems to me therefore that special and differential treatment
should be qualified for the benefit of developing countries based on arrangements such as
those in the ACP-EC Partnership Agreement.
Yet even in this kind of arrangement, preferential treatment can be a ‘double-edged
sword’. Special and preferential regimes are constructed which either could be ‘trade
creating’ or ‘trade diverting’.147 Preferential treatment is ‘trade diverting’ when countries
are in effect compelled to import from producers within the free trade area even if they
are not the most efficient producers. This has the effect of strangling the growth of
developing countries. Basing their arguments on this perception, some scholars hold that
preferential treatment that allows developing countries to avoid full application of the
rules weakens the multilateral trade regime whereas developing countries can only
‘secure a share in the growth of world trade commensurate with the needs of their
economic development’ (in the words of the Doha Declaration, paragraph 2), by taking
full advantage of the trade regime.148
It is without doubt that the liberalization of trade is beneficial and increases world
welfare. Yet, it seems to me that countries in the early stages of economic development
are not well placed to take full advantage of the opportunities created by liberalization,
and should therefore be allowed to protect their infant industries, at least initially from
the full application of the rules of multilateral trade.149 The growth from infancy, it is
argued,150 requires a protected market which is large enough to justify efficient
production. Coupled with the fact that such a market is not available in developing
countries, it follows that preferential treatment will provide opportunities for improved
access to world markets, increased exports and increased income.
146 Kofele-Kale, op. cit. at 310. 147 J Bhagwati, A Panagariya, ‘The theory of preferential trade agreements: historical evolution and current trends.’ (1996) Vol. 86(2) American Economic Review at 82 available at http://www.jstor.org/view/00028282/di976333/97p04055/0 (accessed on 29 November 2004). 148 M Hart, B Dymond, ‘Special and differential treatment and the Doha “Development” Round’ (2003) Vol. 37 (2) Journal of World Trade at 395. 149 M Shafaeddin, ‘What did Frederick List actually say? Some clarifications on the infant industry argument.’ (2000) No. 149 UNCTAD Discussion Paper at 1-27. Available at http://rrojasdatabank.net/unctad00/unct149.pdf (accessed on 29 November 2004). 150 Kofele-Kale, op. cit. at 312.
39
Yet the language of the enabling clause is fluid, permissive and not mandatory. No
enforceable legal obligations are created. Paragraph 1 of the Enabling Clause, which
states that ‘contracting parties may accord differential and more favourable treatment to
developing counties’ clearly uses language that authorizes such treatment without
requiring parties to accord it. Hudec argues that non-reciprocity is simply not a viable
legal concept. He states that ‘... no legal theory can tell us how much a particular
disadvantaged party is entitled to receive from any particular advantaged party or how
much a particular advantaged party is obliged to give’.151
The second legal issue is whether preferential treatment granted to one developing
country ought to be extended to all other developing countries according to the most-
favored-nation treatment. This was the basis of India’s complaint152 against the EC
regarding the conditions under which the EC accords tariff preferences to developing
countries pursuant to Council Regulation (EC) No. 2501/2001 of 10 December 2001
applying a scheme of generalized tariff preferences for the period from 1 January 2002 to
31 December 2004. Of specific concern to India were the ‘Drug Arrangements’ to
combat drug production and trafficking which resulted in a greater tariff reduction
accorded to 12 Latin American countries than the tariff reductions granted under the
General Arrangements to other developing countries. India argued that the ‘Drug
Arrangements’ are inconsistent with Article I (1) of the GATT 1994 and are not justified
by the Decision on Differential and More Favourable Treatment, Reciprocity, and Fuller
Participation of Developing Countries (the Enabling Clause).
The Appellate Body made the following rulings: it upheld the Panel’s finding that the
Enabling Clause is ‘an exception’ to Article I (1) of GATT ; it upheld the Panel’s finding
that the Enabling Clause “does not exclude the applicability” of Article I (1) of GATT; it
reversed the Panel’s finding that the term ‘non-discriminatory’ in paragraph 2(a) of the
Enabling Clause requires in principle that identical tariff preferences under GSP schemes
be provided to all developing countries without differentiation; it reversed the Panel’s
finding that the term ‘developing countries’ in paragraph 2(a) of the Enabling Clause
should be interpreted to mean all developing countries, with the exception that where
151 P Low, op. cit. at 806. 152 India v European Communities-Conditions for the granting of preferences to developing countries (2004) World Trade Doc. WT/DS246/AB/R.
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developed countries are implementing a priori limitations ‘developing countries’ may
mean less than all developing countries. The Appellate Body upheld the Panel’s
conclusion that the European Communities ‘failed to demonstrate that the Drug
Arrangements are justified under paragraph 2(a) of the Enabling Clause’.
The Appellate Body therefore found Council Regulation (EC) No. 2501/2001 to be
inconsistent with Article I (1) of GATT and not justified under paragraph 2(a) of the
Enabling Clause. This decision in a nutshell entails that the term ‘non-discriminatory’
does not prohibit developed country Members from granting different tariffs to products
originating in different GSP beneficiaries, provided that such differential tariff treatment
meets the remaining conditions in the Enabling Clause. In granting such differential tariff
treatment, however, preference granting countries are required by virtue of the term ‘non-
discriminatory’, to ensure that identical treatment is available to all similarly-situated
GSP beneficiaries that have the ‘development, financial, and trade needs’ to which the
treatment in question is intended to respond.
It follows that all preferential treatment granted to developing countries has to be
beneficial to all like developing countries. This is generally to the advantage of the more
advanced developing countries and to the detriment of poorer states like ACP countries.
What this means in fact is there is an erosion of the trade preferences under the GSP
granted to the ACP countries.153 The dilemma faced by the ACP countries in the face of
such preference erosion is whether to embrace most-favoured-nation trade liberalization
or whether they should strive to make preferential treatment more effective coupled with
determining the beneficiaries of such treatment.154 The challenge therefore is how the
liberalization of trade specifically in agricultural products should proceed and what form
it should take. Should it be done in the wider multilateral arena or in regional and free
trading arrangements? These issues will be developed in the following sections of this
dissertation.
153 ACP countries have preferential market access to the EC under the GSP, allowing a reduced tariff rate to apply to exported products from these countries and thus creating a benefit for them. 154 M Gravelle and J Whalley, ‘Africa and the Uruguay Round’ (1996) Vol.6 Transnational Law & Contemporary Problems at 124; where it is argued that African countries will only suffer small negative effects due to preference erosion. However the studies only pay attention to the trade in non-ferrous metals, mineral, and wood products on which MFN tariffs are already low. The trade in agricultural products which is characterized by high tariffs is interestingly ignored.
41
IV. 5) WTO Mechanisms and Legal Implications for ACP and EC Trade
As a result of the Enabling Clause’, special measures have been adopted by developed
countries and specific waivers granted by the General Council to allow preferential
access to goods originating from certain developing countries. I will more specifically
look at special and differential provisions in the ACP-EC Partnership Agreement.
IV. 5A) Regional Trade Arrangements and Free Trade Areas
The Enabling Clause encourages the creation of regional trade arrangements (RTA) on
the rationale that regional trade and multilateral trade are complementary to each other. It
is assumed that a better integration of regional trade would enhance trade at the
multilateral level.155 Since the establishment of the WTO more specifically, the world
and particularly the ACP countries have seen a proliferation of RTAs. Article XXIV
GATT 1994 envisages three types of RTAs: Customs Unions, Free Trade Areas (FTA),
and ‘Interim arrangements’ leading to a Customs Union or a Free Trade Area. Paragraph
4 provides that the aims of Customs Unions and FTAs are to ‘…facilitate trade between
the constituent territories and not to raise barriers to the trade of other contracting parties
with such territories’.
The legal attributes of each arrangement are contained in paragraph 8; for a Customs
Union, ‘duties and other restrictive regulations of commerce…are eliminated with respect
to substantially all the trade between the constituent territories’. Exceptions to these are in
GATT Articles XI (quantitative restrictions), XII (restrictions to safeguard balance of
payments), XIII (non-discriminatory quantitative restrictions), XIV (exceptions to the
rule of non-discrimination), XV (exchange arrangements), and XX (general exceptions to
GATT obligations). Secondly, ‘substantially the same duties and other regulations of
commerce’ must be applied in trade with states not included in the union.
As with the FTA, Member states must eliminate duties on ‘substantially all the trade’
between them.
155 L A Winters, ‘Regionalism versus multilateralism’ (1996) Policy Research Working Paper 1687 (World Bank, Washington, DC) at 1-60. Available at http://www.acp-eu-trade.org/documents/69_winters_regionalism_versus_multilateralism.pdf (accessed on 29 November 2004)
42
Article XXIV (5) (a) (b) of GATT requires the duties and regulations of trade in any
such arrangement ‘shall not on the whole be higher or more restrictive than the general
incidence of the duties and regulations of commerce existing in the constituent territories’
prior to the formation of the free-trade area, or interim agreement as the case may be…’
In recent years the world has seen a proliferation of RTAs and FTAs. In the Eastern and
Southern African region for example, there is the Southern African Customs Union
(SACU), Southern African Development Community (SADC), Common Market of
Eastern and Southern Africa (COMESA) and the East African Community (EAC). Most
of the countries in the region belong to at least two of these regional groups. South Africa
and Botswana are members of SADC and SACU, Namibia and Swaziland belong to
SADC, SACU, and COMESA. Kenya and Uganda are both members of COMESA and
EAC.
These FTAs and Customs Unions have been described as a ‘pox on the world trading
system’ in that they are a stumbling block to trade.156 Since the Member states are
encouraged to remove obstacles to trade amongst the countries of the RTA, the result is
that Member states import from producers within the FTA even when these producers do
not have the comparative advantage in the production of that particular product. These
RTAs have failed to increase trade, attract foreign direct investment and enhance growth.
Considering available trade statistics in the Eastern and Southern African region, in 1990
total exports from this region represented around 1.05 per cent of total world exports; one
decade later in 2002 they were 0.96 per cent. 157
None of the RTAs and FTAs that exist in the world today complies with the provisions
of GATT Article XXIV. The purpose of such arrangements is to facilitate trade between
the constituent territories and not to raise barriers to the trade of other states with such
territories.158 This provision is very ambiguous to WTO Member states in relation to the
Enabling Clause. More grounds for ambiguity exist in the requirement that, in order for a
regional grouping to qualify as a customs union or a FTA under Article XXIV, ‘duties 156 J Bhagwati, Free Trade Today (Princeton, N.J.: Princeton University Press, 2002) 106-120. 157 M de La Rocha, ‘The Cotonou Agreement and its implications for regional trade agenda in Eastern and Southern Africa’ (2003) Policy Research Working Paper 3090 (World Bank, Washington, DC) at 8. Available at http://econ.worldbank.org/files/27936_wps3090.pdf (accessed on 29 November 2004). 158 Article XXIV(4).
43
and other restrictive regulations of commerce must be eliminated with respect to
substantially all the trade between the constituent territories’.159 It appears therefore that
preferential treatment should not be part of any such arrangement. In fact any FTA or
RTA must be non-discriminatory and reciprocal in nature.
It was probably with the desire to provide a smooth transitory period between the time
of inception of a RTA or FTA and the time of its coming to existence that the negotiators
included paragraph 5 providing for ‘an interim agreement necessary for the formation of
a customs union or a free-trade area’ which shall include ‘a plan and a schedule for the
formation of such customs union or of such free-trade area within a reasonable length of
time to be filed with the WTO’.160 The Understanding on the Interpretation of Article
XXIV refers to this length of time as not exceeding ten years unless in exceptional cases.
This Understanding too has not been strictly respected by WTO Member states.
As a result of the fact that no RTA or FTA fits the requirements of Article XXIV, their
continuous existence is rendered legal by waivers of Member states’ WTO obligations. It
is in the shadow of these ambiguities that the ACP- EC arrangements are discussed
below.
IV. 5B) Rules of Origin
The Agreement on Rules of Origin161 recognized that ‘clear and predictable rules of
origin’ facilitate international trade. Therefore all Customs Union and FTAs provide for
rules of origin. This ensures that the origin of goods coming in from states that are not
members to the constituent territories of the Customs Union or FTA is known. Despite
these good intentions, rules of origins have become a contentious issue in global trade.
Article 9(1) (b) (c) which aims at the harmonization of rules of origin provides that these
rules should be able to determine the origin of a particular good if it is wholly obtained in
a country or the country where the ‘last substantial transformation has been carried out’ if
more than one country is concerned with the production of the good. In actual
159 Yearbook of the International Law Commission (1969), A/CN.4/SER.A/1969 at 43. 160 Article XXIV (5)(c). 161 See Annex 1A (Multilateral Agreements on Trade in Goods) of WTO Agreements. Available at http://www.wto.org/english/docs_e/legal_e/legal_e.htm#rules (accessed on 29 November 2004).
44
commercial practice it is sometimes problematic to determine the origin of a product
where a single product often contains components from many parts of the world.162
According to the 2003 report of the Committee on Rules of Origin (CRO),163 out of the
147 WTO Member states, 84 Members have made notifications of non-preferential rules
of origin and 89 Members have made notifications of preferential rules of origin. With
regard to the harmonization work programme under Part IV of the 1986 Agreement, the
CRO in July 2002 forwarded 93 core policy issues to the General Council. The General
Council extended the deadline for completion of these core issues to July 2004. To date
the General Council has not issued a statement on the state of advancement of the
resolutions.
Considering the example of Eastern and Southern African, the various trade
arrangements in the region have adopted different and conflicting rules of origin.
COMESA’s rules of origin are based on a minimum value added and require that local
materials constitute at least 35 per cent of the value added for the product to be
considered a local product. SADC rules of origin on the other hand are sector specific and
require a double transformation in order to qualify for tariff preferences.164 These rules of
origin therefore vary widely. In addition to the high verification costs, rules of origin
create an uncertain business environment. Recent studies have shown that, due to
inability to comply with rules of origin, most EC imports from many developing
countries which are eligible for preferential treatment under the GSP actually get to the
EC market under non-preferential tariffs.165
IV. 6) The ACP-EC Arrangement
According to WTO jargon, the ACP-EC arrangement is a FTA or to be more precise an
interim arrangement towards the establishment of a FTA. Article XXIV (8)(b) defines a
FTA ‘to mean a group of two or more customs territories in which the duties and other
restrictive regulations of commerce… are eliminated on substantially all the trade 162 Henbase (Pty) Ltd v Commissioner, South African Revenue Services, and Another 2002(3) 26(SCA). 163 World Trade Doc. G/L/656, 2003 (03-5896), Report of the Committee on Rules of Origin. 164 M de La Rocha, op.cit. at 12. 165 P Brenton, ‘Integrating the least developed countries into the world trading system: the current impact of European preferences under “Everything but Arms” (2003) Vol.37 (3) Journal of World Trade at 641-642; P Brenton and M Manchin, ‘Making EU trade agreements work: the role of rules of origin’ (2003) Vol. 26 (5) The World Economy at 756-761.
45
between the constituent territories in products originating in such territories’. The ACP-
EC arrangement does not satisfy the modalities set forth in Article XXIV of GATT for
the creation of a FTA. As a result, its legal basis is Article XXV (5) which allows the
CONTRACTING PARTIES to waive in exceptional circumstances an obligation
imposed upon a Member state by the GATT Agreement.
The ACP- EC Agreement arose out of the complex economic relationship that most
European states had with their former colonies.166 While the former colonies remained a
source of raw materials for the European states, these states at the wake of the
independence of their former colonies felt that they had an obligation to assist in their
economic growth. The result of this initiative for a system of trade preferences to their
former colonies was the first Lomé Convention, which has provided the structure for
trade and cooperation between the ACP states and the EC since 1975. In the decades that
followed, the Lomé Convention was renewed three times, with Lomé IV167 commencing
March 1, 1990, and terminating in 10 years.168 For these ACP countries, the most
important set of trade preferences were those related to the export of agricultural products
such as bananas and sugar.169
ACP countries and the EC are members of the WTO, thus they are obliged to follow the
rules of the WTO Agreements. This point is central to the future development of ACP-
EC trade relations.
The main characteristics of ACP-EC Cooperation according to the Lomé Conventions
are a combination of aid, trade and political aspects; protocols, mutual obligations, and a
166 ACP-EC Cooperation dates back to the birth of the European Treaty of Rome 1957 establishing the European Economic Community, which expressed solidarity with the colonies and overseas countries and territories and a commitment to contribute to their prosperity. The first association of ACP and EC Member states (1963-69) Yaounde I, was drawn up in the Cameroonian capital. Yaounde II (1969-75), pledged the lion’s share of financial support to French speaking Africa to build infrastructure in the wake of decolonisation. The Yaounde Accords laid the foundations for the Lomé Conventions. See http://europa.eu.int/comm/development/body/cotonou/lome_history_en.htm (accessed on 09 December 2004). 167 The EC, under Article XXV (5) of the GATT, requested a waiver of its GATT obligations to the extent necessary to allow fulfilment of the Lomé IV requirements inconsistent with the GATT. See ACP Countries-European Communities Fourth Lomé Convention: request for Waiver, GATT Doc. L/7539 (10 October 1994). The Lomé Waiver received an extension in October 1996 until 29 February 2000. See the Fourth ACP-EC Convention of Lomé: Extension of Waiver; World Trade Doc. WT/L/186 (18 October 1996). 168 Fourth ACP-EEC Convention Signed in Lomé, December 15, 1989, 29 I.L.M. 783. 169 R Gerrick, ‘The Cotonou Agreement: will it successfully improve the small island economies of the Caribbean?’ (2004) Vol.27 Boston College International and comparative Law Review at 131.
46
joint administration.170 The trade objective is to provide non-reciprocal preferences for
most exports form ACP countries to EC. Tariff preferences are a central feature of the
Lomé Convention.
The EC agreed to separate trading protocols on sugar, beef, veal, bananas, and rum. The
banana protocol gave duty-free access to the EC market for specific quotas of bananas
each year.171 Under the sugar protocol, the EC bought a fixed quantity of sugar each year
from ACP producers at guaranteed prices higher than world prices.172 This preference has
been especially valuable to the economic development of certain sugar rich ACP states
such as Mauritius, Guyana and Barbados.173
The beef and veal protocol permits a 90 per cent refund of tax normally paid on beef
imports from several ACPs and has especially benefited Southern African exporters.174
In the Lomé Conventions, ACP countries were given the responsibility for their own
development through a programme of joint administration by the Community and the
ACP. A permanent Brussels based ACP secretariat exists which provides technical
support for annual meetings of the ACP/EU Council of Ministers and regular meetings of
the Committee of ACP Ambassadors.
IV. 7) The Need for Change: Pressures on Lomé
The Lomé Conventions were criticized as ineffective in that despite preferential access to
EU markets, ACP export performance had deteriorated over the last two decades.175 The
complexity of the Lomé Conventions is one of the causes identified for these trade
deficits. This complexity resulted in long delays, bureaucratization, and reduced
economic efficiency. 176 Furthermore, the complexities hindered the developmental
impact of Lomé. For example, Lomé IV allocated approximately $ 2 billion to the ACP
170 Available at http://europa.eu.int/comm/development/body/cotonou/lome_history_en.htm (accessed on 09 December 2004). 171 Ibid. 172 Ibid. 173 Ibid. 174 Ibid. 175 R Gerrick, op. cit. at 135. 176 Ibid at 137.
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countries, but only $ 150 million actually found its way into the hands of the farmers
living in these countries.177
Secondly, the strong ties that bind the EC and ACP countries were eroding over the
years from the time that the First Lomé Convention was signed. One reason given for the
secondary place of ACP-EC relation was the extension of the EC.178 As more and
relatively weaker countries became part of the EC, priority was given to them to boost
their economies.
Finally, the Lomé trade provisions were seen as incompatible with the WTO
Agreements. The battles about the banana regime are a case in point.
IV. 8) The Banana Dispute
On 9 December 1994, at the request of the EC and of the 49 ACP states that were also
GATT contracting parties, the GATT granted the EC a waiver from certain of its
obligations under GATT 1947 with respect to the Lomé Convention. It waived the
provisions of paragraph 1 of Article 1 of the General Agreement until 29 February 2000,
to the extent necessary to permit the EC to provide preferential treatment for products
originating in ACP states as required by the relevant provisions of the Fourth Lomé Convention, without being required to extend the same preferential treatment to like
products of any other contracting party.179
Article 1 of Protocol 5 which is an integral part of the Lomé Convention stipulates: In
respect of its banana exports to the Community markets, no ACP State shall be placed as
regards access to its traditional markets and its advantages on those markets, in a less
favourable situation than in the past or at present. The EC therefore grants duty-free
access to all traditional ACP bananas.180 Most European national systems had
177 Ibid. 178 Ibid. 179 World Trade Doc. WT/DS246/R Page E-1 Annex E list of Waivers for Preferences. 180 The ‘twelve traditional banana producing ACP countries’ are Cameroon, Cape Verde, Ivory Coast, Madagascar, Somalia, Jamaica, Belize, St. Lucia, St. Vincent, Grenada, Dominica, and Suriname. Communication from the Commission to the European Parliament - Special Framework of Assistance for Traditional ACP Suppliers of Bananas (Council Regulation 856/1999) - Biennial Report from the Commission (2000). Available at http://www.europa.eu.int/eur-lex/en/com/rpt/2001/com2001_ 0067en01.pdf (accessed on 09 December 2004).
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quantitative restrictions or licensing requirements affecting the banana trade, especially
that stemming from non-ACP exporters.181 This was the basis of the complaint brought
against the EC in the GATT dispute settlement body by some Latin American countries
to challenge the EC's banana import regime.182
The EC's preferential trade benefits for ACP countries limited the number of Latin
American bananas that European nations could import. As a result, Latin American
banana producing countries, with United States’ support, requested that a WTO panel
examine the legality of the trade preferences.183 Principally, the Latin American countries claimed that the EC's import regime was
inconsistent with the MFN clause in Article 1, paragraph 1 of the GATT. Therefore, since
both the Latin American countries and the ACP countries are contracting parties to
GATT, the MFN clause requires that the EC give equal access to its markets to the ACP
states and the Latin American countries.
The ‘third phase’ of the ‘Banana War’ started in April 1996, when Ecuador, Guatemala,
Honduras, Mexico and the United States requested the establishment of a Panel to
examine the revised EC regime for the importation, sale and distribution of bananas
established by Council Regulation 404/93.184 The main issues criticized included whether
the EC licensing imports for Latin American bananas, which excluded large numbers of
such bananas from entering the EC market, were more severe than for other countries.
The WTO Panel found that the EC had only one import regime for purposes of applying
the non-discrimination provisions of the GATT and Article 1.3 of the Licensing
181 H Clark, ‘The WTO banana dispute settlement and its implications for trade relations between the United States and the European Union’ (2002) Cornell International Law Journal at 295. 182 GATT Dispute Panel Report on EEC-Member states’ Import Regime For Bananas, DS32/R (June 3, 1993), 1993 WL 840284 (unpublished Panel Report). It is interesting to note that this was the first of the Banana Disputes that were later known as Banana I, II, and III. In the Banana I and II, the GATT Panel found the EC-Import Regime to be in violation of GATT Article 1. However, the implementation of the Report was blocked by the EC and the ACP Countries due to the GATT dispute settlement process at a time when Panel reports took effect only if approved by consensus of the GATT Council. 183 Multinational corporations in the United States are the primary producers of Latin American bananas and, therefore, were especially opposed to this arrangement. See ‘The trade dispute between the EU and the US over bananas’ House of Commons Library Research Paper 99/28 (1999). Available at http://www.parliament.uk (accessed on 03 January 2005). 184 European Communities- Regime for the Importation, Sale and Distribution of Bananas (1997) World Trade Doc. WT/DS105.
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Agreement. It found that the EC banana import scheme was inconsistent with GATT
Articles I:1, III:4, X:3, and XIII:1, as well as Article 1.3 of the Licensing Agreement. The
Panel further limited the scope of the Lomé Waiver to violations of Article I of GATT,
which embodies the MFN principle. The Lomé Waiver was declared void to the extent
that it permitted violation of GATT Article XIII, which requires that GATT members
administer permissible quota schemes in a non-discriminatory way.185 It ruled that the EC
bananas import regime violated WTO obligations under the GATT, the GATS and the
Agreement on Import Licensing Procedures.
In the Appellate Body,186 the appellants raised the following issues:
(a) Whether the Lomé Waiver granted to the European Communities for "the
provisions of paragraph 1 of Article I of the General Agreement" applies also to
breaches of Article XIII (non-discriminatory administration of quantitative
restrictions) of the GATT 1994 with respect to the EC's country-specific
allocations for traditional ACP States;
(b) Whether the European Communities is "required" under the relevant provisions of
the Lomé Convention to provide duty-free access for 90,000 tonnes of non-
traditional ACP bananas and a margin of tariff preference in the amount of 100
ECU/tonne for all other non-traditional ACP bananas.
The EC argued that there were two separate import regimes for bananas, the preferential
regime for traditional ACP bananas and the erga omnes regime for all other imports of
bananas.187 The EC further argued that the non-discrimination obligations of Articles I:
1, X: 3(a) and XIII of the GATT 1994 and Article 1.3 of the Licensing Agreement, apply
only within each of these separate regimes.188
The Appellate Body upheld the Panel report arguing that the essence of the non-
discrimination obligations is that like products should be treated equally, irrespective of
185See paragraphs 7.103, 7.136 and 7.204 of the Panel Report. 186 European Communities- Regime for the Importation, Sale and Distribution of Bananas (1997), World Trade Doc. WT/DS27/AB/R. 187Ibid, paragraph 189. 188Ibid.
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their origin.189 Non-discrimination obligations apply to all imports of like products,
except when these obligations are specifically waived or are otherwise not applicable as a
result of the operation of specific provisions of the GATT 1994, such as Article XXIV.
The Appellate Body concluded that the non-discrimination obligations of the GATT
1994, specifically Articles I:1 and XIII apply fully to all imported bananas irrespective of
their origin, except to the extent that these obligations are waived by the Lomé Waiver.
Therefore, the allocation of tariff quota shares, irrespective of whether there is one or
more ‘separate regimes’ for the importation of bananas, to some but not to other
Members not having a substantial interest in supplying bananas to the EC is inconsistent
with the requirements of Articles I.1 and XIII.190
Lastly, the Appellate Body upheld the Panel’s findings that the EC is ‘required’ under
the relevant provisions of the Lomé Convention to grant preferential tariff treatment to
non-traditional ACP states in excess of their pre-1991 best-ever export volumes and is
not ‘required’ to maintain the EC import licensing procedures that are applied to third-
country and non-traditional ACP bananas.
The Appellate Body recommended the DSB to request the EC to bring measures found
in the report to be inconsistent with the GATT 1994 into conformity with the obligations
of the EC under the WTO Agreements.191
IV. 9) The Implications of the Banana Dispute on ACP-EC Agricultural Trade IV. 9A) Economic Partnership Arrangements (EPAs).
Partly because the Lome Convention waivers expired in February 2000 and partly
because of the desire of the EC to conform to the decision of the DSB following the
Banana dispute,192 the EC and ACP states began negotiating for a new trade agreement.
On the 23rd of June 2000, the EC and its Member states signed a twenty-year partnership 189 Ibid, paragraph 191. 190 Ibid, paragraph 255. 191 Ibid, paragraph 257. 192 The WTO Ministerial Conference waived the GATT obligations of the EC, which the EC needed to implement the new EU banana import regime's tariff quotas during the transitional period to a tariff-only system, on November 14, 2001. See European Communities - Transitional Regime for the EC Autonomous Tariff Rate Quotas on Imports of Bananas, WT/MIN (01)/16 (Nov. 14, 2001) available at http:// www.wto.org/english/docs_e/docs_e.htm. (accessed on 09 December 2004). On 19 December 2001, the European Union adopted regulations that put the EC’s new banana import regime in place establishing a tariff-only system for banana imports by 01 January 2006.
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agreement with 79 ACP states.193 This is the Cotonou Agreement194 set to replace the
Lomé Convention. Article 1 sets out the objectives of the Cotonou Agreement which
include, poverty reduction, promoting sustainable development, and the gradual
integration of the ACP countries into the world economy. These are to be achieved
through development aid and closer economic and trade cooperation.195
Article XXXIV(1) states that economic and trade cooperation between the ACP and EC
‘shall aim at fostering the smooth and gradual integration of ACP states into the world
economy, with due regard to their political choices and development priorities, thereby
promoting their sustainable development and contributing to poverty eradication in the
ACP countries’.
The Cotonou Agreement is however subject to the Decision of 14 November 2001 for a
waiver of the obligations of the EC under paragraph 1 of Article 1 of GATT with respect
to the granting of preferential tariff treatment for products originating in ACP states as
required by Article XXXVI (30) of the ACP-EC Partnership Agreement. This Decision
waived Article 1(1) of GATT until 31 December 2007 to the extent necessary to permit
the EC to provide preferential tariff treatment for products originating in ACP states
without being required to extend the same preferential treatment to like products of any
other member of the WTO.
IV. 9B) The New Trade Framework
The most radical change in the Cotonou Agreement is the eventual phasing-out of the
ACP’s non-reciprocal trade preferences as existed in the Lomé Convention. The
193 ACP website at available at http://www.acp.int/ExternalSheet.aspx?ArticleFileName=http://www.acp.int/maputo/acpcountries_en.htm (accessed on 13 December 2004). 194 Partnership agreement between the members of the African, Caribbean and Pacific Group of States of the one part, and the European Community and its Member States, of the other part, signed in Cotonou on 23 June 2000, Official Journal L 317, 15/12/2000 P. 0003. See full text of the Cotonou Agreement available at http://europa.eu.int/comm/development/body/cotonou/agreement_en.htm (accessed on 06 January 2005). 195 European Union website available at http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/00/640&format=HTML&aged=0&language=EN&guiLanguage=en (accessed on 13 December 2004).
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objectives are to enhance production, supply and trading capacities to create new trade
dynamics and foster investment to ensure full conformity with WTO provisions.196
The procedures to achieve these objectives are introducing new trading arrangement
known as Economic Partnership Agreements (EPAs). In essence, the EPAs are FTAs
with regional groupings of ACP countries where each party undertakes to abolish
restrictions on imports from the other party.197
Negotiations for the EPAs started in September 2002 with the EPAs to enter into force by
1 January 2008. Article XXXVII provides that ACP countries can negotiate either
individually or collectively taking into account the regional groupings already in place.
The ACP-EC negotiations must meet the terms of WTO rules. By December 2007, MFN
liberalization of trade is to begin with a transitional period of at least 12 years.198
In its new approach of financial cooperation with the ACP States, the EC’s development
aid as of 2008 will be based on two criteria; 1) level of development and 2) regional
integration projects. Financial allocations will be made in accordance with need and
performance. It follows that performance will be rewarded. Country performances will be
based on progress in implementing institutional reforms.199 This relates to efforts to
ensure respect for human rights and create a climate of democracy and rule of law.
The ACP countries are required to negotiate these EPAs in regional groupings. It
follows that Member states in the regional arrangements will have to decide on a
common set of policies. However the current situation makes it difficult to see how
countries belonging to several RTAs can get together and negotiate a few EPAs with the
EC.200 The issue is how to decide on the groupings in the context of the overlapping
regional arrangements in the ACP countries and more specifically in sub-Saharan Africa;
the region with the highest number of RTAs. It is noteworthy that the EC will negotiate a
different EPA with each of these RTAs.
196 Ibid. 197 R Gerrick, op. cit. at 138. 198 Ibid. 199 Ibid. 200 M de La Rocha, op.cit. at 18.
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It has been claimed that ACP countries will not gain many additional preferences to
those they already enjoy but rather that they will actually have to lower their tariffs for
EC products.201 This might have serious negative consequences for ACP countries.
In addition certain banana producing ACP countries, particularly in the Caribbean, will
suffer economic consequences as result of the elimination of Protocol 5 of the Lomé
Convention. For example, 33 per cent of Dominica's labour force and 70 per cent of St.
Vincent's population are directly or indirectly involved in the production and marketing
of bananas.202 Negative consequences for other ACP countries involve unemployment,
thus generating social and political unrest.
However, statistics published by the EC in a ‘Green Paper’, ahead of the 1998 talks on
the new agreement indicate that generous trade preferences were not enough for
economic take off. ACP countries' share of the EC market had declined from 6.7 per cent
in 1976 to 3 per cent in 1998 with 60 per cent of total exports concentrated in only ten
products and just a handful of nations registering economic growth as a result of the trade
protocols and preferences. These were Ivory Coast, Mauritius, Zimbabwe and Jamaica.
The rise in private direct investment flows to developing countries over the last decade
has not benefited the majority of ACP countries. All LDCs (38 in the ACP group)
benefited less than 1 per cent from these flows.203
IV. 9C) EPAs and Everything but Arms Initiative (EBA)
The EC approved the EBA initiative in February 2001. The EBA regulation grants duty-
free access to imports of all products from the least developed countries, with the
exception of arms and munitions.204 For these countries, the EC has eliminated all duties
and quotas for all their products except for fresh bananas, rice, and sugar where tariffs
will be gradually reduced to zero (in 2006 for bananas and 2009 for rice and sugar).205
201 M. Schiff, ‘Regional integration and development in small states’ (2002) Policy Research Working Paper 2797 (World Bank, Washington, DC). 202 R Gerrick; op. cit. at 141. 203 Green Paper on Relations between the European Union and the ACP countries on the eve of the 21st century: challenges and options for a new partnership. COM (1996) 570 available at http://aei.pitt.edu/archive/00001206/01/ACP_21st_gp_COM_96_570.pdf (accessed on 13 December 2004). 204 P Brenton, op.cit. at 623. 205 Available at www.europa.eu.int/comm/trade/issues/global/gsp/erba/index_en.htm (accessed on 21 December 2004).
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The aim of this initiative is to ensure greater and more predictable market access for LDC
products to EC markets.
Once fully-fledged EPAs are established between the EC and the ACP, reciprocity must
be granted in full. In relation to the EBA initiative and the obligations of LDCs in the
WTO, the question that arises is should there not be some consideration of compensation
for ACP LDCs,206 since by joining these EPAs they are forgoing whatever entitlements
they might have under the EBA initiative and the WTO Agreements?207
Of the approximately 50 least-developed countries in the world, 38 are ACP
countries.208 In SADC for instance there is one developed country (South Africa), six
developing countries (Botswana, Mauritius, Namibia, Seychelles, Swaziland, and
Zimbabwe) and seven least developed countries (Angola, Congo DR, Lesotho, Malawi,
Mozambique, Tanzania, and Zambia). Under the Cotonou Agreement, these countries are
required to negotiate EPAs together as one region. However, some countries that belong
to this regional grouping are being treated differently. It is noteworthy that the EC has a
different trade arrangement with South Africa. The framework Agreement for the EC-SA
FTA was signed in October 1999.209 In actual fact, while countries are asked to negotiate
EPAs on a regional basis, some countries in the same region are being treated differently.
The effect, it seems to me, is rendering regional cooperation and integration more
complicated.
206 C Ng’ong’ola, ‘Regional integration and trade liberalization in the Southern African Development Community’ 2003 (3) Journal of International Economic Law at 491. 207 According to Article 37(9) of the Cotonou Agreement, the 38 LDCs of the ACP are not obliged to sign an EPA in order to retain their present level of access to the EC. These countries can chose to keep the existing non-reciprocal trade preferences. This free access to the EC market is however until 2005 at the latest. 208See ‘Linking international trade with poverty reduction’, The Least Developed Countries Report UNCTAD/LDC/2004. 209 See T Bertelsmann, ‘Trade integration in South Africa’, (1998) 6 (1) South African Journal of International Affairs at 48.
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CHAPTER FIVE: LIBERALIZATION
V. 1) Eliminating EC Export Subsidies
EC export subsidies mean that world markets are flooded with subsidized agricultural
products forcing prices down.210 Thus a market as vast as the EC exports agricultural
products when it should be an importer of most agricultural products.211 Eliminating
subsidies will raise the prices of these products in importing countries. This will benefit
exporters from ACP countries but will hurt the importers and consumers of these
products in those countries.
The continuous use of subsidies, it is argued, keeps prices down and the consumers in net
food importing countries benefit.212 This argument is very vague because it alludes to
countries with no agricultural sector at all unlike what obtains in the ACP countries.
Secondly the issue is not only about market access which is denied these countries by
high levies but also about competitivity on the home market which is distorted by EC
export subsidies. This transforms countries whose agricultural sector would otherwise
have a comparative advantage into food importers and from which exports are
disadvantaged.
Furthermore, export subsidies apart from in fact keeping the developing countries out
of the industrialized states’ markets, also undermines the domestic food markets in many
developing countries through dumping of agricultural commodities. Without the dumping
of cheap agricultural products, these countries might be able to revitalize their
agricultural sector.
Liberalizing global trade in agricultural products involves doing away with export
subsidies and domestic support and opening domestic markets to free access from
outside. In the July 2004 Framework, the EC promised to revise the Common
210 Oxfam Briefing Paper, ‘Stop the dumping! How EU agricultural subsidies are damaging livelihoods in the developing world’ available at http://www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp31_dumping.pdf (accessed on 21 December 2004). 211 P R Krugman and M Obstfeld, International economics theory and policy 6th ed. (Boston: Addison-Wesley, 2003) 198-199. 212 ‘The state of food and agriculture 2001’, FAO Agriculture Series No. 33 at 51. Available at ftp://ftp.fao.org/docrep/fao/003/x9800e/x9800e00.pdf (accessed on 21 December 2004).
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Agricultural Policy (CAP), which is the EC’s main instrument for providing domestic
support to European domestic farmers and to eliminate European export subsidies.213
Yet it seems to me that not all categories of developing countries will be beneficiaries
of this across the board liberalization. Developing countries and least developed countries
are treated as two categories when it comes to binding tariffs, reduction commitments,
and transition periods. However, there exists substantial heterogeneity across developing
and least developed countries,214 making it difficult to generalize about the effects of
liberalizing agricultural trade in these countries.
ACP countries currently enjoy preferential market access in the EC and the least
developed among them have duty- and quota-free access under the EBA initiative. This
will decline once liberalisation takes place. EPAs negotiated by 2008 between ACP
countries and the EC will include provisions on reciprocity in trade relations. At first
instance, ACP exporters would therefore stand to lose from the liberalisation of
agricultural trade if they are not in a position to take immediate advantage of the removal
of subsidies.
While it is correct that subsidies be eliminated because of their distorting effect on the
global trading system, some preferential system should also be put in place, both in the
EC and the WTO, to secure the market shares of ACP states that will be harmed by the
liberalization of agricultural trade between the EC and ACP countries.
It is argued that the more advanced developing countries of which the Cairns Group has
many,215 will reap most of the benefits of the liberalization of trade in agricultural
products due to their greater scientific capacity to adapt to new and less transparent trade
barriers such as phytosanitary measures.216 These countries will emerge as the main
exporters of agricultural products by not having to compete with EC subsidized
agricultural exports to the detriment of the poorest countries.217
213 World Trade Doc. WT/L/579(2004), paragraph 17. 214 A Panagariya, ‘Developing countries at Doha’ (2002) Vol. 25(9) The World Economy at 1229. 215 The Cairns Group is a coalition of 17 agricultural exporting countries (Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay.) who account for one-third of the world’s agricultural exports. Available at http://www.cairnsgroup.org/introduction.html (accessed on 17 December 2004). 216A Panagariya, ‘The tide of free trade will not float all boats’ Financial Times, August 3, 2004. 217 Ibid.
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There is no doubt that ACP countries should integrate world trade and be more
competitive in international agricultural trade, but this cannot be done in the context of
total liberalization and trade reciprocity as contemplated by the Cotonou Agreement. This
is identical to the ‘infant industries’ argument. John Stuart Mill argued that in the early
stages of a country’s economic development, there may be a case for the imposition of
protective tariffs or quotas to allow infant industries, in particular infant manufacturing
industries, to develop by servicing a protected domestic market. 218
The framework for liberalisation must therefore continue to support the economic
development needs and more secured market access of ACP countries to the EC. This
point is illustrated by the recent WTO ruling against the EC sugar subsidies.219
V. 2) The Sugar Dispute
These proceedings were initiated by Australia, Thailand and Brazil- all Cairns Group
countries. Certain ACP countries participated in the proceedings as third parties.220 India
and the ACP countries did not support that case and, instead, were outright hostile to the
WTO ruling against subsidies. This is understandable because Council Regulation (EC)
No. 1260/2001 set out rules to promote and protect the EC sugar industry. The regulation
was valid for marketing years 2001/2002 to 2005/2006. 221 One of its main features was
the establishment of price support for domestic sugar, supply controls by way of quotas,
import restrictions and export subsidization. The EC sugar regime also set out the basic
price and the minimum price for beet, which was three times the price of world market
prices.222 Lastly it made provisions for preferential import arrangements. The
intervention price guaranteed a minimum price to be paid by EC purchasers for imports
of sugar from ACP states and India. The EC was required to import duty free 1, 294,700
tonnes (white sugar equivalent) of cane sugar, called ‘preferential sugar’ under Protocol
3 to Annex IV to the ACP/EC Partnership Agreement.223 The guaranteed level of prices
218 C M Harlen, ‘A reappraisal of classical economic nationalism and economic liberalism’ (1999) Vol. 43 (4) International Studies Quarterly at 735. 219 European Communities-Export Subsidies on Sugar (2004) WTO Doc. WT/DS283/R. 220 Barbados, Belize, Cote d’Ivoire, Fiji, Guyana, Jamaica, Kenya, Malawi, Mauritius, Swaziland, Tanzania, Trinidad and Tobago. 221European Communities-Export Subsidies on Sugar (2004) paragraph 7.245. 222Ibid, paragraph 7.244. 223 Ibid.
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ensured predictable and stable earnings crucial for the economic and social development
of ACP sugar producing countries.
In the Sugar dispute, ACP countries were particularly interested in the proper
interpretation and application of the WTO Agreement on Agriculture so as not to
destabilize the balance of concessions reached at the end of the Uruguay Round.
Considering trade statistics for the period 1999-2001, the ACP countries argued that
exports under the Sugar Protocol accounted, on average, for 50.6 per cent of agricultural
exports and 13.6 per cent of GDP of the ACP countries concerned. During the same
period, the number of persons employed in the sugar sector was on average 43.8 per cent
of the total number of persons employed in agriculture.224 These figures had to be
compared with the very small share of the sugar market of the ACP in terms of world
trade: the 1.6 million tonnes exported to the EC represented 3.6 per cent of world trade in
sugar. This trade corresponded to 0.18 per cent of global agricultural trade.225
India considered that this dispute was of great systemic importance not merely in terms
of clarifying the rights and obligations of parties under the WTO Agreement on
Agriculture but also in terms of its impact on the Doha Round.226
After considering Article 3.3 of the Agriculture Agreement that export subsidies
reduction commitments be expressed both in terms of quantity and of budgetary outlays,
the Panel concluded that the EC Sugar regime in favour of ACP/India stated in Footnote
1 to section II, Part IV of the EC’s Schedule was inconsistent with the requirements of
Article 3.3 and therefore was of no legal effect.227 Consequently, the Panel found that the
EC had been acting inconsistently with its obligation under the Agreement on
Agriculture by providing export subsidies on sugar within the meaning of Articles 9.1(a)
and 9.1(c) of the Agreement on Agriculture, in excess of the quantity commitment levels
specified in Section II, Part IV of its Schedule.228
In light of the above, the Panel recommended the DSB to request the EC to bring
Council Regulation No. 1260/2001, as well as all other measures implementing or related
224 Ibid, paragraph 5.4. 225 Ibid. 226 Ibid, paragraph 5.49. 227 Ibid, paragraph 7.196. 228 Ibid, paragraph 7.340.
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to the EC’s sugar regime, into conformity with its obligations in respect of export
subsidies under the Agreement on Agriculture.229
However, because of the concerns expressed by the ACP countries and India with
regard to their continued preferential access to the EC market for their sugar exports, the
Panel suggested that in bringing its exports of sugar into conformity with its obligations
under the Agreement on Agriculture, the EC should consider measures to bring its
production of sugar more into line with domestic consumption whilst fully respecting its
international commitments with respect to imports, including its commitments to
developing countries.230
It is not clear how the EC intends to stand by its commitments to ACP countries on
import preferences, but what is obvious is that the removal of protection and subsidies in
the EC will move its internal prices for agricultural products down. These changes
represent a deterioration of the ACP countries terms of trade.
V. 3 Customs Unions versus Free Trade Areas
A customs union is ‘any territory with respect to which separate tariffs or other
regulations of commerce are maintained for a substantial part of the trade of such
territory with other territories’.231 When a customs union is formed, the participating
states agree on a common outside tariff. The EC has been established as a customs union.
A FTA on the other hand means ‘a group of two or more customs territories in which the
duties and other restrictive regulations of commerce… are eliminated on substantially all
the trade between the constituent territories in products originating in such territories’.232
In a FTA each of the member states establishes its own outside tariff. However, imports
from one member of the free trade area to another member of the free trade area are free
of duty.233 The EPAs that will be negotiated by 2008 between ACP countries and the EC
will establish FTAs.
The first conflict arises when one notes that to sign an EPA with the EC, a regional
grouping must be an effective customs union. Article 35 of the Cotonou Agreement
229 Ibid, paragraph 8.5. 230 Ibid, paragraph 8.7. 231 Article XXIV (2), GATT 1947. 232 Article XXIV (8) (b). 233 A O Krueger, ‘Are preferential trading arrangements trade-liberalizing or protectionist?’ (1999) Vol. 13(4) Journal of Economic Perspectives at 111.
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provides that economic and trade cooperation shall build on regional integration
initiatives of ACP states. However, very few ACP regions have concrete and final
regional arrangements in force. For example, COMESA planned to have a customs union
in place by 2004. It is still pending. SADC plans to have a FTA in place by 2008. The
EAC only recently signed a customs union. Only SACU has been existing as a customs
union for some time.234
Secondly, as each member of a customs union needs to apply the same tariff, it follows
that one country cannot be a member of two customs unions.235 EPA negotiations will
require that ACP countries choose a RTA through which to negotiate with the EC.
Because of the overlapping RTAs in sub-Saharan Africa, for example, it remains to be
seen how the EC will negotiate the various EPAs and what options will be available to
sub-Saharan African states in the light of their membership of the various customs
unions. Already COMESA, for purposes of EPA negotiations, has been reduced to the
East and Southern Africa bloc (ESA),236 a regional arrangement with no legal
framework. What is however obvious is that on-going regional co-operation processes
will be undermined.
Secondly, the trade negotiation abilities of the ACP countries are very weak. An
illustration is the Trade, Development and Cooperation Agreement (TDCA) of 2000
between South Africa and the EC. An important feature of this agreement is the use of
names which indicate the source of origin of wines and spirits such as ‘port’ and ‘sherry’,
‘grappa’ and ‘ouzo’, the so-called geographical indications. EC negotiators argued that
the names ‘port’ and ‘sherry’ could only be used for fortified wines produced in Portugal
and Spain. It was agreed that South Africa wine producers would phase out the names
from their products over a period of five years in export markets and 12 years in
234 M de la Rocha, op. cit at 11. 235 Ibid. Note the example of Namibia and Swaziland’s membership of both COMESA and SACU. These countries have been unable to implement preferential tariffs for other COMESA countries and cannot introduce free trade for imports from other COMESA countries in terms of SACU. The Common External Tariff (CET) of the SACU agreement requires the permission of all member states for any member to give preferences in terms of other FTA regimes. Botswana and South Africa have not given their consent to such action by Namibia and Swaziland. 236 ESA involves SADC members Zambia, Malawi, Zimbabwe, Mauritius, DRC and the Seychelles negotiating alongside Kenya, Ethiopia, Burundi, Djibouti, Comoros, Sudan, Eritrea, Madagascar, Rwanda and Uganda. See T Hartzenberg, ‘Tralac discussions on facing the challenges of economic partnership agreements’ available at http://www.tralac.org/scripts/content.php?id=2838 (accessed on 17 December 2004).
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domestic markets.237 This will have serious financial implications for South African
farmers producing these products in renaming and marketing costs.
Meanwhile the situation is different in the Agreement on Trade-Related Aspects of
Intellectual property Rights (TRIPS).238 Although the TRIPS Agreement provides for the
protection of geographical indications in multilateral trade,239 there are exceptions which
recognize that the names of certain wines and spirits which have become generic or
names that have been used for ten years before the conclusion of the Uruguay Round
cannot be challenged and so cannot be protected as geographical indications.240
This means that South Africa now has two sets of obligations as regards her intellectual
property laws; one at the bilateral level with the EC which disfavors her farmers and the
other more favourable one at the multilateral level within the WTO. Therefore, weaker
states when negotiating get better concessions at the multilateral level with stronger
trading partners than in bilateral negotiations. There is a tendency for bigger countries to
use their bargaining power to pursue their own interests in bilateral trade relations. In
negotiating EPAs, although the same situation cannot in all certainty be said to obtain, it
is however possible that ACP countries will find themselves in a weaker position with the
scale of power balancing heavily in favour of the EC. This eventuality is illustrated in the
inclusion of the so-called Singapore Issues (investment, competition, transparency in
government procurement) under EPA negotiations. These issues were dropped in the
Doha work programme as a result of opposition from developing countries. It is for this
reason that it has been proposed that ‘the rules aspects of the trade-related areas should
not be the subject of EPA negotiations before agreement is reached on how to treat these
issues at a multilateral level in the WTO.241
A further impact of trade liberalization is the loss of government revenue through the
elimination of tariffs. Many ACP countries depend heavily on import taxes for their fiscal
revenue. For example, in Ivory Coast, Sierra Leone, and Uganda, trade taxes represent 40
237 Tralac, ‘When ‘Sherry’ needs to be phased out’ (2004) available at http://www.tralac.org/scripts/content.php?id=2741 (accessed on 17 December 2004). 238 The TRIPS Agreement is Annex 1c of the Marrakesh Agreement Establishing the World Trade Organization. 239 Article 22. 240 Article 24. 241 Oxfam Working Paper (2004) ‘Six reasons to oppose EPAs in their current form’ available at http://www.oxfam.org.uk/what_we_do/issues/trade/downloads/epas.pdf (accessed on 17 December 2004).
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per cent, 49 per cent, and 48 per cent of total government revenue respectively. Studies
have predicted that EPAs would cause major declines in government income through lost
tariff revenue. For example, Cape Verde and the Gambia stand to lose 19.8 per cent and
21.9 per cent of their national incomes respectively; and Ghana and Senegal stand to lose
10 per cent and 11 per cent. It is argued that such decreases in fiscal revenue would
substantially harm ACP countries’ budgetary capacities to finance key expenditures in
areas such as education, health services, and poverty alleviation.242
Lastly, the recent expansion of the EC to twenty-five countries will have some
implications on ACP-EC trade relations.243 The majority of new Member states are
Eastern European countries with relatively weaker economies than the rest of Europe. EC
priority therefore will be geared towards restructuring the economies of these new
members to the detriment of development aid towards the ACP countries. 244
Many ACP countries fell into debt in the 1980s following the increase in oil prices and
the fall of prices of commodities such as, coffee, tea, cotton, and cocoa. These countries
had to borrow heavily just to have foreign currency for their trade needs. Some of them
adopted structural adjustment programmes mandated by the IMF and the World Bank in
order to attain additional loans or as a precondition to the restructuring of existing debt.
Structural adjustment programmes require currency devaluation, reductions in state
spending, privatization of public enterprises, and removal of tariff and non-tariff barriers
to imports. As a result of the structural adjustment programmes, agricultural markets in
ACP countries were to a great extent already liberalized and characterized by high levels
of market openness even before the Uruguay Round reforms. According to UNCTAD,
one reason why deficits have been increasing faster than income in developing countries
242 Ibid. 243 In May 2004, ten countries (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia) joined the EU, bringing the total number of Member states to twenty-five. 244 J Mackie, J Frederiksen, C Rossini, ‘Improving ACP-EU cooperation. Is ‘budgetising’ the EDF the answer’? ECDPM Discussion Paper no. 51(2004) available at http://www.trialog.or.at/docs/acp-eu_paper.pdf (accessed on 17 December 2004)
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is because of rapid liberalization which has produced an import surge in developing
countries, while exports have not been able to keep pace.245
Increased access to ACP markets leads to the dumping of agricultural products by the
EC at below-production costs. The availability of cheap imported food depresses
domestic food prices in ACP countries and lowers the income of local farmers. This in
turn undercuts domestic production increasing food insecurity in ACP countries.246
In light of the above arguments, what form then should liberalization of trade in
agricultural products between the ACP and the EC take? It seems to me that such
liberalization should be characterized by special and differential treatment, improved
market access, domestic regulation, the cancellation of debts, the provision of technical
expertise. These are developed in the next chapter.
245 The Least Developed Countries Report, ‘Linking International Trade with Poverty Reduction’ UNCTAD/LDC/2004. Available at http://www.unctad.org/en/docs/ldc2004_en.pdf (accessed on 08 January 2005). 246 R Zhang, ‘Food security: food trade regime and food aid regime’ (2004) 7(3) Journal of International Economic Law at 578.
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CHAPTER SIX: MODEST PROPOSALS
VI. 1) Improved Market Access
In the 1990s the vast majority of ACP countries actually became poorer failing to acquire
a share in the global economic prosperity. For example, Africa’s share in world exports
fell from about 6 percent in 1980 to 2 per cent in 2002, and its share of world imports
from about 4.6 per cent in 1980 to 2.1 per cent in 2002.247
More concrete effort is thus needed, both at the level of EPA negotiations and
multilateral trade agreements, to assist the developing countries and specifically the least
developed among them to derive benefits from global trade and make their agricultural
trade competitive. This means greater access for their agricultural products to the markets
of the developed countries and the abolition of the huge subsidy given to domestic
producers of agricultural goods in developed countries. It is ironic that industrialized
countries advocate free trade while at the same time maintaining a high level of
protection and subsidies for their own agricultural and food sectors. Subsidies that
support export dumping should be eliminated.
A declaration by the Group of 77 and China at the start of the Doha Ministerial
Conference stated that;
We note that the Uruguay Round Agreements have not resulted, as
promised, in greater market access to the developed countries' markets for
the exports of developing and least-developed countries. The continued
existence in developed countries of tariff peaks, tariff escalations, and other
non-tariff barriers such as arbitrary and complex rules of origin, technical
barriers to trade, and sanitary and phytosanitary measures used for
protectionist purposes, as well as abuse of the so-called trade remedies such
as anti-dumping, countervailing duties and safeguard actions particularly in
sectors of interest for developing countries including textile and clothing,
agriculture and other agro-industrial products, has had a serious negative
247 UNCTAD Report (2004), Development and Globalization: Facts and Figures at 8. Available at http://www.unctad.org/en/docs/gdscsir20041_en.pdf (accessed on 3 February 2005).
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impact on the trade and development prospects of the developing and least-
developed countries and has prevented these countries from reaping the
benefits of trade liberalization. The Ministerial Meeting in Doha should
address the negative impact of these measures on market access
opportunities for developing countries with a view to their elimination.248
VI. 2) Special and Differential Treatment
Although I propose the abolition of subsidies, it seems to me that a full and complete
liberalization of the trade in agricultural products will not effectively redress trade
imbalances between ACP countries and the EC. Reasons for this include the uneven
playing field existing between these two trading blocs (differences in levels of
development and resource endowments), and protecting domestic markets of weaker
economies in order to prevent social dislocation. It is argued that trade liberalization
should not be regarded as an isolated process, but rather as an important component of a
coherent set of policies, including policies that ease the plight of developing and least
developed countries. 249 This is the key to maintaining development-oriented policies and
to protecting ACP markets from premature openness to wholesale competition from the
EC.
In essence this is preferential market access to markets of the developed world based on
the principle of non-reciprocity. Most of the preferential system put in place by the
enabling clause has been eroded by the results of the Uruguay Round. Although every
WTO Agreement provides for preferential treatment including time concessions for
developing countries to comply with the requirements of the WTO Agreements,250 the
provisions granting preferential treatment are mostly rhetorical with no enforceable
obligations. In addition, as the implementation periods allowed to the developing
countries in the Uruguay Round to conform to the WTO Agreements begin to expire,
248World Trade Doc. WT/L/424 of 24 Oct 2001, paragraph 6.249 O Fasan, ‘Global trade law: challenges and options for Africa’ (2003) Vol.47 (2) Journal of African Law at 86. 250See for example Article 27(2) (b) Agreement on Subsidies and Countervailing Measures which gives developing country Members eight years to eliminate export subsidies; the TRIPS Agreement Article 65 which allows developing countries four years and ten years to LDCs before they shall be required to implement the provisions of TRIPS, and the textile Agreement providing for the integration of the textile and clothing sector into GATT 1994 by the end of 2004(Articles 1 and 9).
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ACP countries face full competition from the developed world. This is the so-called
‘single undertaking’ principle under which all WTO Member states have to comply with
every WTO rule.
Although the least developed ACP countries are normally exempt from reciprocity in
the WTO, they will however be required in the EPAs to enter into reciprocal trade
arrangements with the EC. These have the joint effects of further opening ACP markets
to EC exports while at the same time restricting ACP access to EC markets because of
lack of capacity to take advantage of such markets.
It is in this light that trade ministers of the least developed countries, meeting in
Zanzibar, with a view to adopting a common position on LDC agenda prior to the 4th
WTO Ministerial Conference signed the Zanzibar Declaration. 251 They called upon the
4th WTO Ministerial Conference to agree on a binding commitment on ‘duty-free and
quota-free market access for all products from LDCs on a secure, long-term and
predictable basis with realistic and flexible Rules of Origin to match the industrial
capacity of the LDCs’. They also called for binding and full implementation of the
provisions of ‘Special and Differential treatment' of GATT. The LDCs urged the WTO to
make the ‘development agenda’ a top priority for its Doha meeting, stating that ‘the
promotion of development should form the core business of the multilateral trading
system’.
Special and Differential treatment should take the form of unconditional and binding
market access and provide adequate time to implement complex new trade agreements.252
The industrialized states have a moral obligation to support the economic development of
developing countries by allowing them to export at preferential rates into larger markets.
251 World Trade Doc WT/L/409 (6 August 2001). Available at http://www.un.org/esa/ffd/themes/ldc-4.htm (accessed on 21 December 2004). 252 F Garcia, ‘Beyond special and differential treatment’ (2004) 27 Boston College International and Comparative Law Review, at 13. He gives examples of existing special and preferential provisions consisting of ‘best endeavor’ clauses employing purely discretionary language. Best endeavor clauses express what he terms as a ‘moral obligation’ on Members to ‘try their best’. For example, Article 9 of the Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) ‘Members agree to facilitate the provision of technical assistance to other Members, especially developing country Members’ with respect to SPS compliance. Similarly, GATT Article XXXVII (1) urges developed contracting parties to accord ‘to the fullest extent possible… a high priority to the reduction and elimination of barriers to products…of…interest to less-developed contracting parties’.
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Therefore part of the international community’s task in securing market access for
products from the developing world is to firmly incorporate into the WTO Agreement the
concept of special and differential treatment. EPA negotiations being WTO compliant, it
follows that preferential treatment provisions would necessarily have to be a part of every
ACP-EC negotiated EPA.
The question here is which country ought to be defined as a developing country?
Though it is naïve to imagine that there is a definable group of developing and LDC
countries united by common objectives, special efforts nevertheless should be made at
the level of international financial institutions to come up with definite criteria for third
world countries deserving special and differential treatment. It is hypocritical that
countries such as Korea and Singapore should be included in the definition of developing
countries and expect to get the same treatment at the multilateral trade level as a country
such as Swaziland.
Furthermore, preferential market access as implemented through the GSP has not been
of great benefit to ACP countries. In the first place, it is unilateral because it is
implemented through nonbinding discretionary programmes; it is conditional because
compliance or cooperation with a host of non-trade related requirements is imposed as a
condition of receiving preferences.253 Lastly, it is limited in scope, with agricultural
goods excluded, thus eliminating the most viable sectors from receiving preferences.254
Moreover, as global tariff levels are reduced, the marginal value of such preferences
declines
For these reasons, a key goal for developing countries in the Doha Round will be to
secure hard and legally enforceable commitments in the WTO Agreements for special
and differential treatment on the part of developed countries. In the words of the Doha
Declaration, preferential treatment provisions have to be ‘more precise, effective, and
operational’.255 This will ensure that preferential treatment plays a central role in world
trade. This is in line with the purpose of the WTO which was established to ensure that
253 F Garcia, op. cit. at 303-304. 254 Ibid. 255 Paragraph 44 of the Doha Declaration.
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developing countries, and particularly the least-developed among them, secure a share in
international trade commensurate with the needs of their economic development.
VI. 3 The Role of ACP Governments.
It is incorrect to assume that the problems of ACP countries particularly their trade
deficits are all external. The problems are mainly internal. No growth expansion
programmes can come to fruition in an atmosphere of public corruption and inefficient
legal systems. ACP countries need to identify their development objectives and develop
comprehensive policy frameworks. They need to develop regulatory structures that
insulate their economies from the disruptive effects of trade liberalization. This also
entails support mechanisms for the people who are affected by reform-induced policy
shocks. Social policy should be ranked on the same level as economic fundamentals.
This is in fact the idea behind the Comprehensive Development Framework developed
by the World Bank.256
ACP countries depend on a couple of agricultural products for the bulk of their foreign
exchange. This is particularly critical in the face of unstable world prices and weather
changes. While it is true that rapid industrialization is not an immediate option, ACP
governments have to begin by initiating policies leading to the diversification of
agricultural products.
ACP countries need to use countervailing duties and at the same time develop safeguard
mechanisms to ensure that they can react timely to possible harmful increases in imports
from the EC resulting from reciprocal market access.
VI. 4) The Debt Problem and the Doctrine of Odious Debts.
However for ACP countries to pursue development-oriented trade policies effectively,
the debt issue of these countries has to be conclusively addressed. Due to debt repayment
concerns, the IMF and the World Bank prescribed structural adjustments. But what is
past argument now is that current debt levels in ACP countries are unpayable. Millions of
people in sub-Saharan Africa are living in poverty because of the consequences of debt.
256 Available at http://www.worldbank.org/cdf (accessed on 21 October 2004).
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Although it is argued that complete cancellation of debts will not eradicate poverty, it is
also correct that excessive debt is one of the greatest hindrances to economic growth. Yet
ACP countries have a strong legal claim for debt cancellation based on the doctrine of
odious debts. This doctrine is that a state should not be bound by debts not created in the
interest of that state.257 It is an exception to the general rule of state liability for public
debt. The WTO is an ideal forum where such claims could be raised.
It follows that ACP States have to increase their participation in the DSB adjudication.
This is one way in which they can protect their trade concerns and influence the
development of WTO jurisprudence and practice.258
VI. 5) Rules of origin
Preferential schemes are discriminatory in nature and rules of origin are therefore
required to differentiate between products from beneficiary countries and non-beneficiary
countries.259 One of the major reasons for the incapacity of ACP agricultural products to
access EC markets is the restrictive rules of origin
The example of Lesotho illustrates how relaxed rules of origin improve a country’s
export prospects. A comparison is made between Lesotho’s preferential access to the
United States under the AGOA scheme and her participation in the Lomé Convention,
which allowed duty free access of clothing into the EC.The rules of origin requirements
for the EC, however, required a ‘double jump’ in processing when imported inputs are
utilized.260 This meant that the conversion of imported fabric into sewn garments would
not qualify as a product originating in Lesotho. As a result, Lesotho’s garment exports
did not benefit significantly from preferential market access into the EC. By way of
contrast to the EC rules of origin, the scheme applied by the United States in the context
of AGOA allows a ‘single jump’ in processing. As a result, Lesotho’s exports of
garments to the United States have increased in the last three years.261
257 J Rudin, Odious debt (Cape Town: Alternative Information and Development Centre, 2000) 3-4. 258 The example of India’s activism in the DSB in protecting her trade concerns is particularly significant. See European Union- Generalized System of Preferences WTO DOC. WT/DS246/AB/R. 259 World Trade Report 2004, ‘Selected issues in trade and policy’ at 38. Available at http://www.wto.org/english/res_e/booksp_e/anrep_e/world_trade_report04_e.pdf (accessed on 13 January 2005). 260 World Trade Report, op. cit. at 39. 261 Ibid.
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It is imperative that EPA negotiations should provide an opportunity to negotiate
simpler rules of origin that would prevent trade deflection and not compromise
preferential access to EC markets.
VI. 6) Use of Safeguards Measures and Countervailing Duties.
The WTO Agreements allow for safeguard measures when a domestic industry of a
Member country is threatened. GATT Article XIX provides that if as the result of
unforeseen developments and of the effect of the obligations incurred by a contracting
party under this Agreement, any product is being imported into the territory of that
contracting party in such increased quantities as to cause or threaten serious injury to its
domestic producers, the contracting party shall be free, to the extent and for such time as
may be necessary to prevent or remedy such injury, to suspend the obligation in whole or
in part or to withdraw or modify the concession. This introduces quantitative restrictions
as a remedial situation.262
If a panel report or an Appellate body report determines that any subsidy has resulted in
adverse effects to the interest of another Member, the Member granting such subsidy
shall take appropriate steps to remove the adverse effects or shall withdraw the subsidy.
Failing this, the DSB shall authorize the complaining Member to take countermeasures,
which include countervailing duties and safeguards, commensurate with the degree and
nature of the adverse effects determined to exist. These countervailing duties shall remain
in force only as long as, and to the extent, necessary to counteract the subsidization which
is causing injury.263 This does not apply when the subsidies fall within the category of
Part IV non-actionable subsidies. These include subsidies which are not specific and
assistance for research activities conducted by firms or by research establishments on a
contract basis with firms if the assistance covers not more than 75 per cent of the cost of
the industrial research or 50 per cent of the cost of pre-competitive development
activity.264
262 A O Sykes ‘The persistent puzzles of safeguards: lessons from the steel dispute’ (2004) 7(3) Journal of International Economic Law at 526. 263 Article 21 of the Subsidies and Countervailing Measures (SCM) Agreement. 264 Article 8 SCM Agreement.
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However all the disputes on safeguard measures that have been brought to the DSB on
this clause have been given different interpretations on what are the proper safeguard
measures to be taken by WTO Member states.265 It is said that WTO ‘judge-made’ law
prevents members from taking the safeguard measures that the Safeguards Agreement
entitles them to do.266 This has greatly frustrated one of the legal tools allowed in the
WTO Agreement for the temporary protection of weak domestic producers in some
Member countries; a measure that allows states to make the economic arrangements
necessary to render them competent global players.267
ACP countries may impose countervailing duties against imports of subsidized
agricultural products. GATT Article VI (6) and (c) establish a process by which an
importing country may levy a countervailing duty to offset subsidization which injures a
domestic industry.
VI 7) Authoritative Interpretation
Many benefits enjoyed by ACP countries under preferential regimes are being eroded
through challenges in the DSB, with the Sugar Dispute being the latest one. Yet ACP
countries have failed to protect their trade preferences through lack of participation in the
DSU.
The end of the so-called ‘peace clause’ allows for DSU challenges. 268 This could be a
valuable opportunity for ACP countries to challenge the EC subsidies regime for
agricultural products on the ground that such subsidies causes ‘serious prejudice’ to non-
265 Korea- Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/AB/R (1999); Argentina-Safeguard Measures on Imports of Footwear, WT/DS11/AB/R (1999); United States-Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb meat from New Zealand and Australia, WT/DS178/AB/R (2001); United States- Definitive Safeguard Measures on Imports of Wheat Gluten From the European Communities WT/DS166/AB/R (2001); United States- Definitive Safeguard Measures on Imports of Certain Steel Products, WT/DS248-259/R (2003). 266 D McRae, op. cit. at 6. 267A O Sykes, op. cit at 525. 268 R H Steinberg and T E Josling,‘When the peace ends. The vulnerability of EC and US agricultural subsidies to legal challenge’ (2003) 6(2) Journal of International Economic Law at 371.
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subsidizing countries within the meaning of SCM Agreement Article 5 (c),269 as
demonstrated by the effects described in SCM Agreement Article 6(3) (a)-(c).270
However for these opportunities to be beneficial for the preservation of ACP
preferential regimes in world trade there has to be an enhanced role for the WTO General
Council in international economic relations.
Article III (2) of the WTO Agreement states that the ‘WTO shall provide the forum for
negotiations among its Members concerning their multilateral trade relations in matters
dealt with under the agreements in the Annexes to this Agreement. The WTO may also
provide a forum for further negotiations among its Members concerning their multilateral
trade relations, and a framework for the implementation of the results of such
negotiations, as may be decided by the Ministerial Conference’.
In light of the above, it is imperative that the Ministerial Conference and the General
Council should take the lead in fashioning a sensible interpretation of WTO law
especially the law of safeguards, the law of special and preferential treatment and the
Agreement on Agriculture. Article IX (2) of the WTO Agreement gives these organs of
the WTO ‘exclusive authority to adopt interpretations of this Agreement and of the
Multilateral Trade Agreements’ and ‘in the case of an interpretation of a Multilateral
Trade Agreement in Annex 1, they shall exercise their authority on the basis of a
recommendation by the Council overseeing the functioning of that Agreement. The
decision to adopt an interpretation shall be taken by a three-fourths majority of the
Members’. 269 Article 5(c) provides that ‘no Member should cause, through the use of any specific subsidy not excepted by the Agreement, adverse effects to the interest of another Member’. 270 Article 6(3) provides that ‘serious prejudice in the sense of paragraph c of Article 5 may arise in any case where one or several of the following apply: a) the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member; b)the effect of the subsidy is to displace or impede the exports of a like product of another Member from a third country market; c) the effect of the subsidy is a significant price undercutting by the subsidized product as compared with the price of a like product of another member in the same market or significant price suppression, price depression or lost sales in the same market; d) the effect of the subsidy is an increase in the world market share of the subsidizing Member in a particular subsidized primary product or commodity, as compared to the average share it had during the previous representative period of three years and this increase follows a consistent trend over a period when subsidies have been granted.
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In addition, Article 19(2) of the DSU provides that the findings and recommendations
of panels or of the Appellate Body ‘cannot add to or diminish the rights and obligations
provided in the covered agreements’.
This calls for a review of DSU jurisprudence in the General Council. It seems to me that
in this manner the spirit and intent of the WTO Agreement will be preserved and
maintained and the propensity for law-creation in the DSU regulated.
VI. 7) Compensation
A study of WTO rulings reveal that the implementations of these rulings are less
automatic, and considerable delays can occur before implementation takes place, or
before compensation or retaliation are authorized and carried out. Therefore by the time a
WTO proceeding comes to an end, the complaining party would have suffered much
harm.
Moreover ACP Member states do not have the capacity to carry out retaliatory trade
measures against major trading partners. For example, The DSB authorized retaliation in
the sums of $201.6 million for Ecuador in the Banana Dispute.271 The fact that Ecuador
did not in fact take retaliatory measures raises doubts about the efficacy of retaliation. In
fact retaliation is a difficult remedy, akin to shooting oneself in the foot. What sanctions
can weak countries actually carry out against stronger trading partners?
The question arise whether there can be a possibility of repairing the loss incurred
rather than compliance and compensation through trade concessions in the WTO. This
school of thought has its foundations in the work of the International Law Commission
on the Draft Articles on State Responsibility (DASR).272 The DASR sets out two basic
legal consequences of an internationally wrongful act: cessation and reparation. These are
defined as follows
A) cessation and non-repetition: The State responsible for the internationally
wrongful act is under an obligation (a) to cease that act, if it is continuing; (b) to
271 World Trade Doc. WT/DS27/ARB/ECU. 272 Adopted by the International Law Commission at its fifty-third session (2001)). Official Records of the General Assembly, Fifty-Sixth Session, Supplement No. 10(A/56/10), chp. IV. E.1.
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offer appropriate assurances and guarantees of non-repetition if circumstances so
require.273
B) Reparation: (1) The responsible state is under an obligation to make full
reparation for the injury caused by the internationally wrongful act. (2) Injury
includes any damage, whether material or moral, caused by the internationally
wrongful act of a state.274
The PCIJ made clear in the Chorzow Factory Case that ‘it is a principle of international
law that the breach of an engagement involves an obligation to make reparation in
adequate form’.275 It is suggested that a provision for monetary compensation for the
injured Member country be included in the WTO.
CONCLUSION
ACP countries are rich in natural resource endowments and cheap labour power giving
them a comparative advantage over the developed world in agricultural trade. In actual
fact agriculture forms the backbone of most ACP countries. The liberalization of world
trade for agricultural products marked by preferential market access is a panacea for the
economic development of ACP countries. The Doha Declaration affirms that ‘special and
differential treatment for developing countries shall be an integral part of all elements of
the negotiations and shall be embodied in the Schedules of concessions and commitments
and as appropriate in the rules and disciplines to be negotiated, so as to be operationally
effective and to enable developing countries effectively to take account of their
developmental needs, including food security and rural development’.276
It is incorrect to compel poor countries to open themselves completely to full trade
liberalization, while at the same time developed countries still keep very high import
273 Article 30 274 Article 31 275 C Carmody, op. cit at 312. 276 Paragraph 13, Doha Declaration.
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barriers. The present industrialized nations such as the United States, Germany, and
Japan developed industrial strength before they opened up their markets.277
According to Nobel laureate Paul Samuelson, there is essentially only one argument for
freer trade, namely: free trade promotes a mutually beneficial division of labour among
nations and that it allows each nation to expand its production and consumption
possibilities, raising the world’s living standards.278 The Cotonou Agreement and the
EPA negotiations between ACP and EC can contribute importantly to the development
and maintenance of well-functioning national trade regimes by providing countries with
certainty and predictability in their trading relations. In negotiating EPAs, attempts
should be made to rationalize and define the RTAs currently existing within the ACP.
What is however obvious is that any EPA negotiation that is phrased as the Lome
Convention is likely going to face a lot of litigation in the WTO. These negotiations
therefore have to conform to the WTO Agreements. This necessitates an efficient and
secure rules-based global trading regime.
It follows that there must be an enhanced role for international law involving the
regulation of all major areas of international economic law under the WTO. The objective
is to ease conflicts between foreign and local interests. It is suggested that the main object
of international law has, to a large extent, been to produce an ordered rather than a just
system of international relations.279 However in recent years there has been a movement
toward greater demands for fairness in international law. Thomas Frank captures this new
trend when he proposes that the questions which the international lawyer must now be
prepared to respond (different from the traditional inquiry whether international law is
law) is whether international law is effective and most importantly whether it is fair.280
However, only experience will reveal how EPAs actually impact the development of
ACP countries.
277 Oxfam Report, ‘Rigged rules and double standards: trade liberalization and the Fight against poverty’ (2002). Available at http://www.maketradefair.com (accessed on 6 January 2005) 278 P A Samuelson, Economics 13th ed (New York: McGraw-Hill , 1989) 919 279 I A Shearer , Starke’s international law 11th ed ( London: Butterworths, 1994) 5 280 T M Franck, Fairness in international law and institutions (Oxford: Oxford University Press, 1995) 6