It’s Time to Look the Gift-horse in the Mouth. The True Cost of WTO Membership for Developing Countries.

It’s Time to Look the Gift-horse in the Mouth. The True Cost of WTO Membership for Developing Countries.
Author: Andrew Johnston
Queen’s University Belfast.

The strong do what they can, the weak suffer what they must. Thucydides 431 BC

This discussion will not only explore the advantages and disadvantages that membership of the World Trade Organisation (WTO) holds for developing countries, but will test the hypothesis, with increased focus on developing countries, that the agreements negotiated within the WTO are prejudiced towards the interests of developed countries. It will highlight the most significant policy agreements and evaluate whether or not these have been implemented in such a way so as to maximise the economic growth of developing countries.

Out of the ashes of The Second World War, on the wings of unprecedented international cooperation, [1] the General Agreement on Tariffs and Trade ascended into being in 1947. With naught but a collection of rules and agreements to bind its members, its dependence on cooperation with little in the means of dispute settlement saw it struggle to lower trade barriers and demolish discriminatory policies in international trade [2] for almost half a century. Its limited scope and the contracting party’s limited commitments [3] heralded a system in which nation’s own priorities took precedence over the objectives of the Agreement and developing countries received little in return for their involvement. [4]
It was in the face of these weaknesses that the World Trade Organisation rose like a phoenix from the flames in 1995. In common with its predecessor the WTO set out to reduce barriers to trade by lowering tariffs and tackling non-tariff barriers through a system of reciprocal and mutually advantageous arrangements, [5] aiming to foster world economic development, [6] and claiming a specific focus on the needs of developing countries. [7] Unlike GATT however, these agreements between members were permanent, [8] took precedence over domestic legislation, [9] pertained to a permanent institution, [10] possessed a permanent secretariat [11] and a fast and effective dispute settlement process. [12] This meant that the objectives of the WTO could be more readily enforced, and membership was certainly more advantageous for the developing countries that had been let down by the ineffectiveness of GATT. The WTO assured its members that increased trade liberalisation and the reduction of tariff and non-tariff barriers would bring increased development opportunities to its least developed members, and 2001 promised the determined efforts of the international community to work towards a better future for developing countries, [13] introducing the Doha Development Agenda. [14] Of particular significance to developing countries on this agenda were issues pertaining to agriculture, transfer of technology, and intellectual property rights. Work on this Agenda was to grant developing countries and LDCs certain advantages to further integrate them into the international market and contribute to their economic growth.

The greatest commitment to LDCs was the product of the Tenth Ministerial Conference of the World Trade Organisation. [15] The Nairobi Package [16] delivered a series of six Ministerial Decisions that both acknowledged the profound role international trade forms in economic development, [17] and responded to the specific trade needs of LDCs. Most significantly, for the purposes of this discussion; it enforced a complete ban on agricultural subsidies, [18] it increased market access for LDC’s cotton exports, [19] introduced preferential rules of origin for LDCs [20] as well as preferential treatment in favour of LDCs’ services. [21] Such a package is advantageous to LDCs for several reasons. Firstly, the elimination of agricultural export subsidies served to level the playing field by preventing the artificial suppression of prices with which LDCs could not compete. This would certainly contribute to the economic growth of developing countries by enhancing the marketability of their products. The removal of export subsidies on cotton intended to allow LDCs to boost their share of cotton related exports far beyond the 10% [22] they currently hold, by making their price comparatively more attractive. The introduction of preferential rules of origin and preferential treatment awarded LDCs the advantage of both quota and duty-free market access to developed countries, further increasing their ability to engage in international trade. Certainly, at first glance and from the Nairobi Package alone, it would appear that membership of the WTO was greatly advantageous for developing countries, and more specifically, LDCs. Further, it would seem that these Decisions were made solely for the benefit of developing members with developing countries making concessions in the interest of LDC development. However, it is worth alluding to the fact that developed countries will be entitled to continue subsidising their agricultural exports until 2020. [23] Further, that the Cotton Four [24] first raised concerns about cotton export subsidies in 2003, however the US, which historically had contributed generous subsidies to its own cotton industry had resisted strongly. This 12-year delay therefore hints towards the disadvantageous disproportionate influence that developed countries hold over WTO agreements. Whilst the WTO have recently endorsed a joint initiative with UNTAD [25] and ITC [26] to enhance the economic potential of cotton by-products, [27] one can’t help but wonder whether these measures are truly significant enough to facilitate meaningful economic development. Academics have expressed the belief that the commitments of developed members regarding preferential market access and treatment are in practise much less important than they appear on paper. [28] Structural Change Models of Economic Development theory often herald the movement of labour from agriculture to industry as the impetus for economic growth. The two-sector model attributes economic growth to the surplus of industrial profits, achieved by producing a refined product as opposed to a raw materials [29] which can be traded on the global market with a larger profit margin. Whilst the Nairobi Package is certainly advantageous for developing and least-developed members, improving both their access to and competitiveness in the global market it would appear that the key to significant economic development lies elsewhere. Indeed, at the turn of the millennium the World Bank [30] stated, in line with new growth economic development theories, that the leading reason for the lack of growth in developing and least developed countries had been due to the inequality of technological transfer and access.
The TRIPS Agreement [31] makes provision for the transfer of technology from developed members to developing and LDC members, ‘on request’ [32] acknowledging the significant importance of access to technology for developing countries. The TRIPS Agreement obligates developed members to provide incentives for the dissemination of technology into developing countries [33] as a means of increasing the capacity such nations have for economic growth, however the results of this have been rather ambiguous. [34] In addition to this absence of any clear results there has been the ongoing contention surrounding the wider implications of the TRIPS Agreement. Contemporary theories of economic development build upon the structural models and link economic growth with the increasing profitability of knowledge. New Growth Theory [35] emphasises the importance of the development of knowledge, in other words, the importance of the application of innovation to the resources available to a nation. It encourages nations to draw upon their exponential knowledge base as a renewable source to allow them to develop their exports from raw materials to increasingly advanced and marketable finished goods. The significance therefore of knowledge as a resource with greater potential for economic growth than any other means that there needs be an appropriate way of protecting and fostering it, especially within developing countries and LDCs.

One of the most controversial topics and greatest disadvantages for developing countries of the WTO currently resides in the area of intellectual property rights (IPRs) and therefore alludes to the disadvantages that TRIPS Agreement imposes on developing members. Biopiracy is characterised by the Oxford Dictionary as the practice of commercially exploiting naturally occurring biochemical or genetic material… by obtaining patents that will restrict its future use, while failing to pay fair compensation to the community from which it originates. [36] The significance of this process is that by appropriating the resources of developing countries in this way, developed countries are undercutting the potential for economic development by prohibiting them in some instances from selling some product that derive from their own resources. The source of this contention is Article 27 of the TRIPS Agreement which provides for the eligibility of patentable materials. More specifically however the issue arises from what is not able to be excluded from patent eligibility under Article 27.3(b) which grants members the ability to exclude plants and animals but prevents the exclusion of micro-organisms and certain biological processes. Even at its conception this issue of biotechnology was envisaged to be controversial, it was the only provision in the entire TRIPS Agreement which came with the compromise of an early revision date. This is not least down to the Convention on Biological Diversity (CBD). [37] Whilst there is ongoing debate as to the incompatibility of TRIPS and the CBD, it falls outside the scope of this discussion. [38] However, it is worth noting that the Convention has as an objective ‘the conservation of biological diversity, the sustainable use of its components, and the fair and equitable sharing of the benefits arising out of the utilization of genetic resources’ [39] and that it also requires participating countries to pass legislation ensuring that biotech companies share the results and benefits of their research and development with the country from whom the material was derived. [40] This indicates that the significance of the application of knowledge to a nation’s own resources is widely acknowledged as being key in their economic development as stated under the New Growth Theory. Despite this however, some developing members feel that TRIPS acts as a vehicle for exploitation. [41] In addition to the significance of knowledge, development theory also highlights the importance of wealth injections as per linear growth models. [42] In order to attain these foreign investments however, developed countries often require potent IPR protection. Therefore, in a sense TRIPS is advantageous to developing countries as it incentivises foreign investment and therefore contributes towards economic growth. The disadvantageous for developing countries however would seemingly tip TRIPS in favour of developed members. Turmeric, [43] the Neem tree, [44] the Enola Bean plant, [45] and Basmati rice [46] are some examples of this imbalance. These products saw their respective countries face exclusion from the US market due to patents the US had put in place in favour of national companies. This patent enforcement supported by the TRIPS Agreements of the WTO has a significant impact on the economic growth of developing countries. It not only precludes trade by preventing entry into the markets of developed countries, such as the U.S. in the case of the above products but is also disadvantageous by means of the knock-on effects this has on the ability of the country to further develop those resources. The objective behind the protection of intellectual property is the promotion of intellectual creativity and innovation [47], yet in practice this is not the effect it has on developing countries. Developed countries certainly place great emphasis on the requirement to protect intellectual property in order to incentivise research and development, the disadvantage to developing countries is therefore highlighted in comparison. The importance that developed countries assign to protecting their products, from a strong economic background reflects just how destructive biopiracy can be, as it has the effect of preventing developing countries protecting their own resources which is even more harmful due to their weak economic background and reduced ability to deal with fluctuation in trade conditions. The disadvantages that the TRIPS agreement imposes on developing members of the WTO are further illustrated when one considers that even when a developing member feels that their IPRs have been violated, the financial burden of initiating patent litigation means that redress is often prohibited.

The agenda for international intellectual property rights was essentially at the behest of developed nations. Japan, the United States, and the EU petitioned for IPRs to be added to the agenda for the Uruguay Round [48] despite ardent opposition from developing countries.
This reflects yet another of the disadvantages faced by the developing and least developed members of the WTO. The influence of the ‘Quad Countries’, US, EU, Japan, and Canada is arguably disproportionate in the formation of WTO agreements. To compound this, these countries often continue negotiations outside official meetings raising questions as to the transparency of such agreements. Even where official meetings of the WTO are concerned however developing countries and LDCs in particular are able to maintain only small delegations and at times aren’t able to attend the various meetings that run simultaneously, and these delegations often lack the expertise present in the delegations of developed countries. Whilst the US has donated over $600,000 [49] to the WTO for the purposes of training the delegations of developing countries and the WTO makes provision to render technical assistance [50] to developing countries which is of course advantageous, developing countries are still unable to effectively voice their interests. In essence the TRIPS Agreement seeks to impose the system of intellectual property protection that already exists in the developed countries, but universally [51] which establishes private rights to prevent market competition as discussed in the cases of India, Mexico, and Pakistan’s experience with rice, seeds, and plants.

A further disadvantage of the TRIPS Agreement was the threat it posed to generic medicines, which greatly enhance affordability and access to medicine for developing countries. The pharmaceutical industries of developed countries argue that strong IPR protection is required in order to secure reliable revenue sources which in turn supply the requisite incentive to undertake costly research and development commitments. Indeed historically, developed countries have waged aggressive campaigns against countries they perceived to endanger their IPRs. Most notably targeted were South Africa and Brazil whose saving graces were public outrage. Such tirades are justified by the claim that generic drugs threaten to decrease income to pharmaceutical companies and therefore threaten to reduce the investments made in research and development. Developing countries however counter this argument by emphasising that long-term research and development is of no benefit in the midst of an HIV/AIDS crisis such as that endured in Africa. However, even outside these pandemics, regular illnesses still require medication and in developing countries many cannot afford the more expensive variants. The WTO, aware of these barriers agreed to remove the limitations facing developing countries with regards to medicines permanently in 2017. [52] The effect of this was to allow compulsory licensing of IP without the authorization of its owner, as a result developing countries can manufacture generic drugs without receiving permission in cases of ‘emergency’. This development has been greatly advantageous to developing countries. It releases the pressure that previously sought to suppress the availability of generic medicines which will aid in the continuation of public health improvements and protect those same countries from aggressive litigation. Criticism remains however surrounding the requirement to declare a state of emergency and the ethical implications of patenting medicines.

It has become evident that striking a balance with intellectual property rights is crucial to facilitating the economic growth of developing countries and LDCs. In line with New Growth Theory, the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and economic welfare. [53] One way in which developing countries sought to attain this is by means of expanding the protection afforded by geographical indications. [54] Geographical Indications identify the country or region of origin of certain products through a procedure that ensures the authenticity of that origin. These can be utilised to protect traditional knowledge by specifically rewarding the producers of a specific region that conform to the practices of that region. Currently geographical indications offer protection to products such as champagne from the specific region of Champagne in France, however there are calls from developing countries to expand the products that are included within this protection. Peru for example have established the National Anti-Biopiracy Commission [55] as part of their attempt to protect its genetic resources and traditional knowledge, as it first raised to the WTO in 2005. [56] Peru wish to protect Camu Camu, a fruit highly sought after for having 60 times the ascorbic acid levels of a lemon. However, extended geographic indicators could help tea farmers in India or Coffee plantation in Columbia, Ecuador, or Kenya by ensuring that similar products could not be marketed in such a way so as to mislead customers into buying them. The additional advantage of this would be the reputation and quality that would come to be associated with the product which would allow for growth of exports as these products became established in the market and therefore growth of the economy. Geographic indicators were debated under the Doha Mandate, however, the area remained too contentious for any meaningful ground to me made. Given the clear advantages that such an expansion would have for developing countries, it is evident that developed countries have not supported the idea. This lends credence to the argument that whilst developed countries will be seen to aid developing members, they do so when is convenient. Where such aid would however result in potential inconvenience for developed countries, they use their relative influence and bypass the decisions. As a result, geographic indicators have not been discussed at the WTO since 2011. A further measure which would be an advantage to developing countries is the enforcement of ‘prior informed consent’. This issue was raised at WTO level in 2003 where it was rejected by developed members. [57] Prior informed consent would require any country or corporation to secure informed consent before gathering any resources or samples. In 2011 there was a draft decision written which implemented this procedure [58] and was communicated from developing members including India, Columbia, Peru and Kenya however talks have again been stalled since then following disagreement.
The absence of any clear results on the issues raised by developing countries is a clear indication that their equity within the WTO is much lower than that of the developed nations, an all too familiar disadvantage for developing members.

This discussion has reviewed the influence of the WTO on its developing members and taken account of the advantages and disadvantages that the implementation of different agreements has had on their economic growth. It has through this discussion become apparent that where a more basic level of trade is concerned, membership within the WTO is advantageous to its developing members but that many disadvantages exist where more elaborate development is concerned. The support of the Nairobi Package certainly will aid trade of cotton and agricultural products in developing countries and LDCs, however at what cost? The restrictions placed on developing nations by means of the TRIPS agreement greatly inhibits their ability to develop anywhere beyond a dependence on agriculture and raw material exports. It appears that the influence of developed members is acting to suppress the potential of competition from developing nations as can be seen more clearly in areas such as the contention that still remains surrounding generic medicine. Further, developed nations appear to disregard the interests of developing nations altogether when the result is sufficiently profitable as is evidenced by the occurrence of bio-piracy and their opposition to the introduction of features that would go towards balancing the TRIPS scales such as prior informed consent and expansion of geographic indication protection. It is time for developing countries to look the gift-horse in the mouth and decide whether membership truly is in their favour. It is noted that since Doha in 2001, LDCs in particular have seen steady increase in both GDP [59] and HDI. [60] However, least-developed members Gambia, Vanuatu, and Yemen have all seen a decline in GDP of between 2 and 28 per cent to date either from 2001 or when they joined the WTO (whichever was the most recent). While biggest increase in both GDP and HDI have actually been experienced by those countries listed on the UN List of least-developed countries who are not members of the WTO. Namely Ethiopia which experienced increases of 491 per cent and 53% respectively. It should be noted that such development is not limited to Ethiopia. Although these statistics are not directly reflective of the wider developing members, the benefit of LDC statistics is that they are the nations least resilient to the influence and effects of the WTO and therefore provide the most accurate indicator of the impact that membership has for developing countries. Whilst there are a number of benefits these appear almost to be outweighed by the disadvantages. New Growth theory states that true economic growth comes from the development of knowledge, however membership of the WTO is doing little to facilitate this and developing countries remain unable to redirect the Organisation’s focus as has been seen by the inefficacy of their contributions.

1. C. VanGrasstek, The History and Future of the World Trade Organisation, (World Trade Organisation Publications, 2013) VII.
2. Article XII
3. Preface, ‘Provisional Application’
4. GDP Statistics ‘note that many of these countries joined in the 60s’
5. Preamble of WTO agreement
6. A letter from the President of the World Bank to Director-General of the WTO.
7. 20 Years of WTO, A Retrospective, 6.
8. Article II(2)
9. Article II(3)
10. Article II(1)
11. Ibid
12. Article III(3)
13. Conference Chair Youssef Hussain Kamal
14. Doha Development Agenda
15. Held in Nairobi, Kenya, from 15th to the 19th of December 2015. This also marked the twentieth anniversary of the World Trade Organisation.
16. Nairobi Ministerial Declaration, WT/MIN(15)/DEC. Accessible at: https://www.wto.org/english/thewto_e/minist_e/mc10_e/mindecision_e.htm. Accessed, 09/12/18.
17. Ibid, Recital 6.
18. Ministerial Decision of 19 December 2015: WT/MIN(15)/45 – WT/L/980
19. Ministerial Decision of 19 December 2015: WT/MIN(15)/46 – WT/L/981
20. Ministerial Decision of 19 December 2015: WT/MIN(15)/47 – WT/L/917/Add.1
21. Ministerial Decision of 19 December 2015: WT/MIN(15)/48 – WT/L/982
22. https://www.wto.org/english/thewto_e/minist_e/mc10_e/briefing_notes_e/brief_cotton_e.htm
23. Ministerial Decision of 19 December 2015: WT/MIN(15)45 – WT/L/980, note 4.
24. The collective name that has been assigned to Benin, Burkina Faso, Mali, and Chad.
25. United Nations Conference on Trade and Development
26. International Trade Centre
27. https://www.wto.org/english/news_e/news18_e/cott_07dec18_e.htm
28. C. Michalopoulos, Aid, Trade and Development, (Palgrave, 2017) 27.
29. W. A. Lewis, Economic Development with Unlimited Supplies of Labour, (The Manchester School, 1954) 22(2), 139-191.
30. World Bank, Entering the 21st Century – World Development Report 1999/2000 (OUP, 2000)
31. Agreement on Trade-Related Aspects of Intellectual Property Rights, 1994.
32. Ibid, Article 67.
33. TRIPS, Article 66.2.
34. Correa CM, “Can the TRIPS Agreement Foster Technology Transfer to Developing Countries?” in Keith E Maskus and Jerome H Reichman (eds), International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime (Cambridge University Press 2005)
35. P.M. Romer, Increasing returns and long-run growth. (Journal of Political Economy, 1986) 94, (5), 1002-1037
36. https://en.oxforddictionaries.com/definition/biopiracy
37. United Nations Convention of Biological Diversity, 1992.
38. The WTO have acknowledge the existence of this area of discussion and have set it as an issue for review, https://www.wto.org/english/tratop_e/trips_e/art27_3b_e.htm.
39. United Nations Convention of Biological Diversity, 1992. Article, 1.
40. Ibid, Article 19.
41. S. Ghosh, Globalisation, Patents, and Traditional Knowledge, Journal of Asian Law, 17, 73 (2003).
42. B. Ingham, Economics and development, (McGraw-Hill, 1995)
43. The U.S. Patent and Trade Mark Office, patent No. 5,401,504: for the use of powdered turmeric to speed the healing of wounds.
44. The U.S. Patent and Trade Mark Office patented a method for improving the storage of neem seed extracts containing azadirachtin; and the insecticidal composition.
45. G. N. Rattray, The Enola Bean Patent Controversy: Biopiracy, Novelty and Fish and-Chips, 8 Duke L & Tech Review, 1 (2003)
46. S. Subbiah, Repeating What They Saw: The Basmati Rice Controversy and Stratgies for Protecting Traditional Knowledge, 27 B.C. International & Competition Law Review, 529 (2004).
47. S. A. Singham, Competition Policy and the Stimulation of Innovation: TRIPS and the interface Between Competition and Patent Protection in the Pharmaceutical industry, 26 Brook. J. International L. 363 (2000-2001).
48. R. J. Pechman, Seeking Multilateral Protection for Intellectual Property: The United States ‘TRIPS. Over special, 301, 7 MINN. J. Global Trade 179, 183 (1998).
49. Figures attained from a WTO press release, accessible at: https://www.wto.org/english/news_e/pres18_e/pr829_e.htm
50. Committee on Trade and Development – Biennial technical assistance and training plan 2018 – 19, WT/COMTD/W227
51. L. M. Fecteau, The Ayahuasca Patent Revocation: Raising Questions About Current US Patent Policy, 21 B.C. Third World L. J. 69, 78 (2001)
52. https://www.wto.org/english/tratop_e/trips_e/wtl641_e.htm
53. Article 7, TRIPS Agreement
54. Article 2, TRIPS Agreement
55. The Nacional Anti-Biopiracy Commission was established under Law No. 28216, approved by Congress on April 6, 2004, and published on May 1, 2004, in the Official Journal ‘El Peruano’.
56. Document IP/C/W/441 ‘Article 27.3(b), relationship between the TRIPS Agreement and the CBD and protection of traditional knowledge and folklore’.
57. Summary of Issues Raised and Points Made (IP/C/W/368/Rev.1 and Corr.1) accessible at: https://www.wto.org/english/tratop_e/trips_e/ta_docs_e/4_ipcw273rev1_e.pdf
58. TN/C/W/59
59. Gross Domestic Profit statistics attained from: https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
60. Human Development Index statistics attained from: http://hdr.undp.org/en/data