On new year’s day, a long-awaited trade agreement entered into force. This is called the Regional Comprehensive Economic Partnership (RCEP), and it brings together the 10 members of the Association of Southeast Asian Nations (ASEAN) with five other countries, including China.
The pact is a headache for Washington. It showcases China’s leadership in the region and will cost the United States around $ 5 billion in lost exports to Asia-Pacific. But there is good news. Not in Asia-Pacific, mind you, but in Geneva, where the United States wants to reform so-called special and differential (S&D) treatment at the World Trade Organization (WTO).
First the backstory. The WTO allows its members to self-declare as developed or developing countries. Developing countries benefit from special and differential treatment. For example, there are 27 relevant provisions on longer âtransition periodsâ for the implementation of obligations, and 25 on âtechnical assistanceâ. health and safety standards, among others. The provisions say things like âtake into account the special needs of developing country Membersâ. They have even been the subject of litigation a few times.
Where things get interesting is that the United States does not like S&D. He argues that these provisions dilute developing countries’ WTO obligations and may encourage cheating. It wasn’t that long ago that the Trump administration decided to do something about it.
In July 2019, the United States issued the “Reforming the status of developing countries within the World Trade Organization” memorandum. Referring to “China and too many other countries,” he said it is time for the office of the United States Trade Representative (USTR) to act unilaterally and “no longer treat like a developing country for the purposes of WTO any WTO member who, in the judgment of the USTR, wrongly declares itself a developing country and wrongly seeks to take advantage of flexibilities in WTO rules and negotiations. It means S&D.
The reaction abroad was overblown and predictable. India noted the note “spells the end of the principle and practice” of special and differential treatment, and that it “would cause lasting and systemic damage to the multilateral trading system”. China conceded that he would not ask for a âblank checkâ on special and differential treatment, but pledged to exercise his rights in agriculture and financial services, in particular.
In total, two-thirds of WTO members claim the right to special and differential treatment. But the real problem is that S&D has turned into something that goes way beyond the provisions themselves. It has become a story that has few references in the texts. The S&D thus hinders negotiations and undermines confidence in litigation when these arrangements do not work as intended. Just ask Argentina and Brazil.
Enter RCEP. The text is a mixed bag. It does not cover a number of issues included in other trade agreements, and some key obligations are superficial. But on S&D, RCEP is remarkably sober. It may help the United States to involve China and others in the reform of TSD at the WTO.
On S&D, RCEP nods to the phase of the WTO’s gradual introduction of intellectual property and offers interesting language on a so-called âtransitional safeguardâ. But that’s about all. Chapters just aren’t inundated with S&D.
The real action is in the chapter on dispute resolution. Two things stand out. First, special and differential treatment is reserved for the least developed countries (LDCs). Among the current members of RCEP, this means that only Cambodia, Laos and Myanmar are eligible. The text draws attention to the âspecial situationâ of LDCs and demands that a complainant show âthe requisite restraintâ in prosecuting and sanctioning these countries.
What does it mean? To a large extent, it doesn’t matter. This will never be the subject of a dispute. Cambodia, Laos and Myanmar have never participated in WTO dispute settlement. This is the case more generally for LDCs.
Second, the panel is required to “explicitly state” how it took into account any special and differential treatment provision raised in litigation. The WTO does this too, but for cases involving developing countries at large, not just LDCs. The United States has no problem offering special and differential treatment to LDCs.
Of course, as in the WTO, RCEP members might come to view S&D as more than what the text actually says. But to get China and others to talk about reforming S&D at the WTO, the US can use RCEP as Exhibit A.
Marc L. Busch is Karl F. Landegger Professor of International Trade Diplomacy at the Walsh School of Foreign Service at Georgetown University. Follow him on Twitter @marclbusch.