SESSION 3: IMPLEMENATION ISSUES


• 3.1 SPECIAL & DIFFERENTAIL TREATMENT AGREEMENT: Prof. Y. Tandon, Southern and Eastern African Trade Information and Negotiations Initiative (SEATINI)
  • Floor Discussion of Presentation by Y. Tandom
• 3.2 WTO TECHNICAL COOPERATION: Mr. T. T. Chifamba, Minister Counsellor, Zimbabwe Embassy, Switzerland
• 3.3 TRADE-RELATED INVESTMENT MEASURES: Ms P. Nyatanga, Research Economist LOTRU, University of Zimbabwe

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SESSION 3: IMPLEMENATION ISSUES

3.1 SPECIAL & DIFFERENTAIL TREATMENT AGREEMENT:
Prof. Y. Tandon, Southern and Eastern African Trade Information and Negotiations Initiative (SEATINI)

Prof. Tandom stated that the special and differential treatment is the specific application at the international level of a general principle of justice that weaker members of a society (any society) be treated differentially. This focus has shifted towards economic and production circumstances. In other words, the unequal should not be treated as equals, the lamb and the lion scenario – can not put them in one cage and expect the lamb to see day break.

The S&D principle came to the fore in the 1950’s, when it was identified that developing countries have structural biases against them such as deteriorating terms of trade which were progressively becoming skewed. Following the formation of UNCTAD, protectionism of infancy industries in developing countries was propagated for through government subsidies. UNCATAD assisted developing countries acquire information, analysis and negotiation capacity.

Over the years, there has been erosion of S&D since the end of the cold war and Prof. Tandom attributed this to the creation of one super power namely the United States, which faced intensive competition from the Far East. Trade with these countries for the US was now on the basis of equality and efficiency as opposed to managed trade. The GSP application also got eroded. Another factor resulting in the erosion of the S&D was the importance attached to foreign direct investment given that capital accumulation in developing countries was too meager to stimulate any meaningful labour absorptive economic development. Hence, governments could not in winter go bowl in hand begging under S&D and in summer, embark on an intensive foreign direct investment promotions.

Floor Discussion of Presentation by Y. Tandom

Participants all agreed that there was coherence problem in trying to meet the demands of IMF and WB under structural adjustment programmes and accessing subsidies under the WTO provisions. There was no country on planet earth that did not use subsidies according to Mr. Chifamba, with the EU using the Common Agriculture Policy. Mr. Mangudya expressed doubt on whether the developing countries could really afford to use subsidies.

In response, Mr. Chifamba indicated that subsidies were a budgetary issue – that is allocation of resources. There was also a third form of subsidies i.e. through positive externalities such as research, markets development and infrastructure.

He suggested that before negotiating with the EU under the ACP framework, developing countries should procrastinate and allow the ensuing negotiations under the WTO in the post-Seattle era to come to a conclusion. South Africa on the other hand, if it had exercised this option, could have clinched a better deal.

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3.2 WTO TECHNICAL COOPERATION: Mr. T. T. Chifamba, Minister Counsellor, Zimbabwe Embassy, Switzerland

Mr. Chifamba’s presentation focused on technical assistance as one of the key elements to assist developing countries’ integrate into and derive benefits from the multilateral trading system. Unfortunately, technical assistance has not been accorded the importance its due given that regular WTO assistance budget of CHF 741 000 is 0.5 percent of total budget of CHF127 million. Out of a total of 134 members to the WTO organisation, there are 90 member states carrying the developing countries nametag.

There has been too much reliance on extra-budgetary resources which financed 80 percent of technical co-operation activities in 1998. Since there is a multitude of donors, Secretariat in Geneva has had to bend backward to appease donors’ needs as opposed to the needs of the recipient developing countries wanting to utilise the resources. This has compromised planning and systematic approach as priorities are determined by donors and not the intended beneficiaries.

Technical assistance addresses the following:

• Building the analytical capacity of trade negotiators.

• Building infrastructure capacity to address information asymmetries.

• Building institutional capacity of all stakeholders.

• Assisting WTO members in fulfilling their Notification obligations.

• Assisting WTO members in effecting appropriate legislative reforms.

• All these are problems that have been identified in the negotiations and the implementation phases.

As part of preparations for Seattle, a number of proposals on the improvement of WTO technical assistance delivery have been made. These include:

• Making technical assistance one of the core activities of WTO

• Directing all future budget surpluses to technical assistance

• Deploying more personnel and resources to the WTO Technical Cooperation Division

• Providing more technical assistance in the area of dispute settlement

• Instituting an annual evaluation of WTO technical assistance activities

• Improved coordination with other organisations such as World Bank, ITC, UNCTAD, WIPO, Sub-regional organisations etc.

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Zimbabwe has benefited from a number of WTO technical assistance missions. There was need to move away from generalised seminars which merely aim at increasing awareness of WTO agreements and procedures. The country should undertake careful needs assessments to identify areas in need and to tailor technical assistance programmes to address those needs. It was noted that the WTO was not the only organisation offering technical assistance – after all they always give neutral advice.

Mr. Chifamba, in his conclusion, pointed out that there were other organisations and bilateral donors who gave more useful assistance as the government strive to prepare national positions. In this regard, a number of programmes have been initiated, for example:

• UNCTAD/UNDP project on the evaluation of the impact on implementing Uruguay Round Agreements on Zimbabwe.

• Zimbabwe/DFID project on capacity building directed at all stakeholders and building institutional capacity.

• UNDP Programme for trade related technical assistance for Africa – continent wide and also seeks to build capacity of regional secretariats and institutions.

• Need for a coordinated approach especially with sectors.

• Need to involve NGOs and Academia as well as Labour.

3.3 TRADE-RELATED INVESTMENT MEASURES: Ms P. Nyatanga, Research Economist LOTRU, University of Zimbabwe

Ms Nyatanga’s presentation focused trade related investment measures. When an investment is being made in a country, sometimes governments impose conditions, some of which are trade related, while others are not. A government may prescribe that the investment can only be made in a firm, which is owned by the resident citizens, or it may impose restrictions on the repatriation of profits or on the import of raw materials or the export of products. The Agreement on Trade Related Investment Measures (TRIMs) covers measures which are imposed on investment and, at the same time, which are related to trade in goods.

No discipline has been prescribed in this agreement on other type of conditions on investment. Measures that are outside the domain of trade in goods are not covered by it, for example restrictions on repatriations of dividends, ceiling on the equity holdings of foreign investors etc.

The agreement specifies, in Article 2, which type of conditions put on investments are in contravention of the obligations under Article III and XI of GATT 1994.

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Pertaining to Zimbabwe’s concerns, Ms Nyatanga pointed out that the TRIMs agreement specifically prohibits application of the domestic content requirement. This has resulted in a major handicap for developing countries. The domestic content requirement is useful and often necessary for:

• Encouraging domestic economic activities in raw materials and intermediate input sectors

• Upgradation of input production

• Prevention of wastage of foreign exchange in the import of raw materials and intermediate inputs

• Ensuring linkages of foreign direct investment with domestic economic activities

• Encouraging indigenisation in the case of foreign direct investment

• Acting in several other ways as an important instrument in the development process.

Given the above arguments it is important for developing countries to have the flexibility to apply domestic content requirement.

Zimbabwe has adopted an indigenisation programme as a way of helping local entrepreneurship. Given this how does the country promote the indigenisation programme if there are no constraints on local content? In Zimbabwe has infant industries which are coming up, therefore there is need to give priority to these infant industries that have potential of being competitive in the international market.

There are worries that through TRIMs the industrialised countries are trying to get the provision of the aborted Multilateral Agreement on Investment (MAI) through the back door. There is also another issue related to the reserve list for investment – sectors where total foreign ownership is not possible but reserved for local investors, for example, tuck-shops or hair salons. At present there was restriction on putting limitation to the import of inputs. It cannot be limited to a certain percentage of the exports of the entity. This restriction inhibits a developing country from having balancing of foreign exchange. In view of the precarious foreign exchange position of the developing countries in particular Zimbabwe it is necessary that this flexibility is available to them. Developing countries should be exempted from the discipline of not limiting the import of inputs.

Ms Nyatanga proposed that specific provisions be included in the TRIMs Agreement to provide developing countries the necessary flexibility to implement development policies (intended to address among others, social, regional, economic and technological concerns) that may help reduce the disparities faced vis-a-vis developed countries.

The agreement poses problems both with respect to the limited transitional period available for removing TRIMs and the denial of freedom to countries to channel investments in such a manner that fulfils their developmental needs.

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There is therefore a need to review provisions in the agreement relating to local-content requirements as the existing provisions come in the way of accelerating the industrialisation process in the developing countries and deny these countries the means to maintain balance of payment stability. With a view to ensuring that these instruments may be maintained by developing countries till such a time that their developmental need demand, the transition period mentioned in Article 5 Paragraph 2 needs to be extended.

The TRIMs agreement should be modified to provide developing countries another opportunity to notify existing TRIMs measures, which they would be then allowed to maintain till the end of the revised transitional period. Most developing countries have gone through the process of liberalising their economies and this has not yet attracted enough investment in their countries as expected. Therefore when the agreement on TRIMs comes up for review, investment friendly measures by developing countries should be incorporated.