Given that the next round of WTO negotiations is supposed to be a “development round”, the interests of developing countries should be given priority in all areas of the negotiations, including the setting of tariffs. Irrespective of the drawbacks of preferential treatment, discussed above, developing countries are likely to continue to emphasize the need for better preferential access to developed country markets, including those for agricultural products. Thus the issue of trade preferences will definitely be on the negotiating table. However, rather than requesting, in a wholesale fashion, the largest possible trade preferences for all developing countries, in all developed countries, for all products, more differentiated negotiating approaches should also be examined. Some of them will be discussed in this section.
At the most fundamental level, a crucial question that should be considered first is whether the negotiating aim should be to achieve what could be called ‘shallow’ preferences for all developing countries, or whether ‘deep’ preferences for the least-developed and other vulnerable countries are a more promising aim. In this distinction, ‘shallow’ preferences stand for limited preference margins for selected products, sometimes constrained by TRQs, while ‘deep’ preferences would, in the extreme case, amount to zero preferential tariffs for all products. Why would a choice probably have to be made between these two options, rather than requesting ‘deep’ preferences for all developing countries? The hypothesis behind this suggestion is that developed countries may be willing to ‘give’ only a somewhat limited amount of preferences, in the form of either ‘shallow’ preferences for all developing countries or ‘deep’ preferences for a smaller group of such countries. At the same time, developing countries have only a finite amount of ‘negotiating capital’ in the negotiations, and may therefore have to make a choice as to where best to invest their negotiating efforts.
Several factors will have to be considered in making this choice. One of the most important aspects may be that ‘shallow’ preferences are likely to lose their value relatively soon as MFN tariffs are reduced further, while ‘deep’ preferences may last longer, in so far as they may not be eroded so quickly. Another factor is the issue of which developing countries ‘deserve’ preferences most. As suggested above, it can well be argued that the least-developed and other vulnerable countries indeed are most in need of support for their efforts to expand exports. This view is probably also shared by most developed countries. Hence, it may well be easier in the negotiations to achieve ‘deep’ preferences for such countries than to obtain marginal improvements of ‘shallow’ preferences for all developing countries. An indication of the willingness of (some) developed countries to provide ‘deep’ preferences for the LDCs is the recent “Everything but Arms” initiative of the European Commission (see above, Section 2). If accepted by the EU Council of Ministers, these ‘deep’ preferences would not even have to be negotiated in WTO.
One option that should be considered in this context is to amend the current WTO definition of LDCs (which is that of the United Nations) in the Enabling Clause, to also include vulnerable developing countries such as small, island and land-locked countries in the category of developing countries to which preferences deeper than those under the GSP can be granted. As argued above (Section 4), preferences are particularly important not only for poor, but also for small and other vulnerable countries.
Of course, if such ‘deep’ preferences were to be granted, and ultimately not only by the EU but also by other developed countries, this would and should not do away with the existing preferences extended under the GSP. Is there anything that should be done about the latter in the coming negotiations? Several options come to mind. One would be to bind these preferences in WTO.[30] For the time being, they are extended unilaterally by the developed countries concerned, based on their national legislation. In legal terms, developing countries have no ‘rights’ to them. At the same time, conditionalities attached to trade preferences (such as labour rights or environmental standards) should be removed where they are not in line with overall standards agreed multilaterally in WTO.
Another possible step is to move from preferential tariffs set in absolute terms (whether ad valorem or specific) to ones defined in terms of preference margins. The preferences would thus be defined relative to MFN tariffs i.e. given monetary units below MFN tariffs (where the latter are specific) or given percentages thereof (where MFN tariffs are ad valorem). Determining tariff preferences in this way would guard against preference erosion resulting from any further reductions of MFN tariffs.[31] Of course, ideally these preference margins would then be bound in WTO.
An option certainly worth pursuing is to increase TRQ volumes under GSP regimes. Of course, this is most useful where the preferential quotas are currently fully utilised. However, even quotas that have not been fully used so far can prove to be constraining in the future, and it may therefore be worthwhile expanding them as well. Another area where improvements can be made is rules of origin. In many cases, these rules are too complex and impede a rational use of tariff preferences.
Beyond such general approaches, some more product-specific improvements of preferences could also be envisaged. For example, in agricultural trade tariff peaks still prevail. Attempts will certainly be made, and the idea has already been put forward by some countries in their initial negotiating proposals, to adopt some formula for tariff reductions which reduces high tariffs relatively more than low tariffs. The so-called Swiss formula, used for industrial tariff reductions in the Tokyo Round, is one formula which would achieve this objective. However, it is far from certain such an approach will actually be adopted in the current round of negotiations. Even if it were, significant tariff peaks are likely to remain. In this context, developing countries could suggest that for products with tariff peaks there should as a minimum be significant reductions in preferential tariffs so that developing countries can at least gain better access to the markets concerned.
Similarly, tariff escalation still is a problem in some developed countries’ tariff schedules for agricultural products and processed foods. Tariff escalation is a serious barrier to developing countries’ efforts to diversify their export structures and in particular to expand their exports of high-value processed products. The subject will undoubtedly be taken up in the current negotiations. However, the outcome is uncertain here, too. Accordingly, developing countries could suggest that at least they should be allowed better access to developed countries’ markets for processed products. Hence specific new trade preferences should be considered where tariff escalation still prevails even in the schedules of preferential tariffs.
In sum, a number of options can be considered regarding the future of trade preferences in WTO. Rather than working towards an expansion of ‘shallow’ preferences for all developed countries under GSP regimes, an attractive alternative might be to aim at ‘deep’ preferences for the least-developed and other vulnerable countries. In this context, the Enabling Clause could be amended by including small and other vulnerable countries, in addition to the LDCs, in the category of developing countries that can receive preferences deeper than those granted under the GSP. The functioning of the existing GSP schemes, which should certainly be maintained, can be improved by: binding the preferential tariffs in WTO; removing conditionalities; setting preferential tariffs relative to MFN tariffs (rather than in absolute terms); expanding TRQs; simplifying rules of origin; and increasing the preference margin where MFN tariffs exhibit peaks and tariff escalation.
