Developing Country Status


  • Recently, South Korea decided not to seek special treatment reserved for developing countries by the World Trade Organization (WTO) in future negotiations given its enhanced global economic status.
  • South Korea, Asia's fourth-largest economy, has maintained its developing country status as a member of the WTO since the body's creation in 1995, mainly to guard its agriculture industry.

Background

  • In July, 2019, USA accused developing countries, particularly China and India, of unfairly benefitting from their “developing country" status under the World Trade Organization (WTO) regime which permits such countries special and differential treatment (or S&D in WTO parlance).
  • USA asked the WTO to define how it designates developing-country status, a move apparently aimed at singling out countries like which are getting lenient treatment under the global trade rules.
  • The US has proposed that the WTO strip countries of developing-country status if they meet the following criteria-
    • being members of the Group of 20 advanced economies
    • being members of the Organisation for Economic Cooperation and Development (OECD)
    • being high-income countries as classified by the World Bank
    • taking up at least 0.5 percent of total global trade.

Impact of South Korea’s Decision

  • The decision is likely to put pressure on countries like China and India which are enjoying the WTO’s developing country status, to reconsider and change their status in the WTO.

Definition of Developing Country

  • In the WTO, developing countries are entitled to “special and differential treatment” set out in 155 rules. It was introduced as a mechanism to offer some respite to poor countries while they try to adjust to a new global trade order marked by lower barriers to trade.
  • However, none of those rules define what a “developing country” is. Members announce for themselves whether they are “developed” or “developing” countries.
  • However, other members can challenge the decision of a member to make use of provisions available to developing countries.
  • As many as two-thirds of the 164 members of the WTO have classified themselves as developing countries.
  • The WTO deals with the special needs of developing countries in three ways:
    • The WTO agreements contain special provisions on developing countries. These provisions are referred to as “Special and Differential Treatment” (S&D) provisions.
    • The Committee on Trade and Development is the main body focusing on work in this area in the WTO, with some others dealing with specific topics such as trade and debt, and technology transfer
    • The WTO Secretariat provides technical assistance (mainly training of various kinds) for developing countries.

Special and Differential (S&D) Treatment Provisions

  • The WTO Agreements contain provisions which give developing countries special rights. These are called “special and differential treatment” provisions.
  • The Ministers at the 4th WTO Ministerial Conference (DOHA, 2001) mandated the Committee on Trade and Development to examine these special and differential treatment provisions.
  • The Bali Ministerial Conference in December 2013, established a mechanism to review and analyse the implementation of special and differential treatment provisions.

Aim

  • To facilitate compliance with WTO rules in view of the limited capacities of Least Developing Countries (LDCs)
  • To protect their policy space
  • To support in increasing their participation in international trade by addressing supply-side constraints and supporting trade-related elements of development strategies.

S&D Provisions

  • Longer time periods for implementing Agreements and commitments,
  • Measures to increase trading opportunities for developing countries,
  • Provisions requiring all WTO members to safeguard the trade interests of developing countries
  • Support to help developing countries build the capacity to carry out WTO work, handle disputes, and implement technical standards
  • Provisions related to least-developed country (LDC) Members.

Significance

  • Special and differential treatment allows developing countries longer time frames to implement commitments and greater flexibilities in adopting measures to improve their presence in global markets.

Advantages under Developing Status

  • Under the global trade rules, developing countries claim entitlement to longer timeframe for the imposition of safeguards, generous transition periods, softer tariff cuts, procedural advantages for WTO disputes and the ability to avail themselves of certain export subsidies. For ex. developing countries such as India and China can seek to delay the implementation of these WTO agreements owing to their disadvantaged economic status.
  • Developing countries are allowed to provide considerably larger input subsidies and minimum price support (they can offer product-specific farm subsidies up to 10% of the value of production, against 5% for developed countries, although the latter enjoy other flexibilities).
  • Further, these countries will continue to provide indirect export subsidies, covering internal transport and marketing, until 2023, five years after the deadline for elimination of all forms of export subsidies.
  • Developing countries can continue to impose tariffs and quotas on goods and services in order to limit imports and promote domestic producers who may otherwise be affected adversely by imports that are lower in price or better in quality. For ex., India subsidises agriculture heavily in the name of food security in order to protect its farmers.

Way Forward

  • While the developing country status was supposed to help poor countries ease gradually into a more globalised world economy, it has had other unintended effects.
  • Even many developed economies such as Singapore and Hong Kong which have per capita income levels higher than the U.S., have made use of the provision to classify themselves as growing economies.
  • When the wealthiest economies claim developing-country status, they harm not only other developed economies but also economies that truly require special and differential treatment. Such disregard for adherence to the WTO rules, including the likely disregard of any future rules, cannot continue to go unchecked.
  • The WTO is in desperate need of reform, without which the WTO will be unable to address the needs of workers and businesses or the challenges posed by the modern global economy.

India Renounces Trade Protectionism At The SCO


Why is it in News?

The Prime Minister took part in the annual Shanghai Cooperation Organisation (SCO) Summit on 14th June, 2019, that was held at Bishkek, Kyrgyzstan.

Relevance of the News:

SCO is an important regional grouping for India’s interests and PM’s statement highlights India’s expectations from SCO members and the group’s functioning.

Minutes of the Meeting:

  • Prime Minister Narendra Modi undermined unilateralism and trade protectionism pursued by some countries and reflected by US-China trade rivalry and called for a rules-based, anti-discriminatory and all inclusive WTO-centred multilateral trading system.
  • SCO members agreed that global politics and economy remains turbulent and tense, and the process of economic globalisation is being hindered by the growing unilateral protectionist policies.
  • India expressed its commitment towards ensuring a favourable environment for the economic cooperation between the SCO member countries.

Shanghai Cooperation Organisation (SCO):

  • It is a permanent intergovernmental international organisation, created in 2002 in Shanghai. SCO was preceded by the Shanghai Five mechanism.
  • It has two permanent bodies:
  • SCO Secretariat based in Beijing.
  • Executive Committee of the Regional Anti-Terrorist Structure (RATS) based in Tashkent.
  • Membership: SCO comprises eight permanent member states, namely Kazakhstan, China, Kyrgyz Republic, Russia, Tajikistan, Uzbekistan and two countries India and Pakistan joined as permanent members in 2017.

Objectives of SCO:

  • Strengthen relations among member states.
  • Promote cooperation in political affairs, trade, scientific, cultural, energy, transportation, tourism spheres, and environmental protection.
  • Safeguard regional peace, security, and stability.
  • Create a democratic, equitable international political and economic order.

 

The United Nations Human Rights Council


Why is it in News?

  • Geneva based Human Rights Council’s (HRC) Special Rapporteurs recently submitted a note to the government asking about steps taken on addressing the alleged human rights violations in Jammu and Kashmir which were highlighted by a June 2018 report of the UN Office of the High Commissioner of Human Rights (OHCHR).

The UN Report:

  • The UN report was released along with another report which was released by two NGOs on the alleged cases of torture which was endorsed by a former UN Special Rapporteur.
  • As per UN officials, India is in contravention of several conventions it has committed to, including a “Standing Invitation” signed in 2011 to all special rapporteurs to visit India and more than 20 such visit requests, including to Jammu and Kashmir, are pending at present.

India’s Response:

  • India has rejected all the claims made by the UN OHCHR’s report on the ‘Situation of Human Rights in Kashmir’ calling it biased. It is the first-ever such report on Jammu and Kashmir.
  • Indian Permanent Mission to the UN in Geneva replied to the OHCHR that India does not intend to engage further with these Special Rapporteurs on the issue whom it accused of individual prejudice.

Report by the NGOs:

Association of Parents of Disappeared Persons (APDP) and the J&K Coalition of Civil Society (JKCCS) released a report ‘Torture: Indian State’s Instrument of Control in J&K’ which highlights the following:

  • Nearly 70% of torture victims in J&K were civilians (not militants) and 11% died during or as a result of torture.
  • The cases included incidents of electrocution, ‘water-boarding’ and sexual torture, which the government has repeatedly denied.

United Nations Organization


Why is it in News?

The Delhi High Court has directed that the United Nations Organization (UNO) is not a State under Article 12 of the Constitution of India and is not compliant to its jurisdiction under Article 226 of the Constitution.

Section 86 of Civil Procedure Code, 1908:

  • Under section 86 of the CrPC, 1908 a foreign State may be sued in any Court with the consent of the Central government.
  • A former UNO employee who was sentenced to 97 months imprisonment for misconduct maintains that the rightful process was not followed by the UNO in the trial and sought the permission of Ministry of External Affairs to initiate legal action against the UNO under section 86 of Civil Procedure Code, 1908.
  • However, the Ministry replied that the consent of the Government of India is not needed to open a legal suit against UNO as it is not a foreign state and is only an Internal Organization.

Immunity to UNO:

  • As per the Ministry, the UNO and its officials enjoy immunity under the United Nations (Privileges and Immunities) Act, 1947.
  • As per Section 2 of Article II of the Schedule of Act, 1947, UNO has immunity from every form of legal process except in any case where it has expressly waived its immunity.
  • The immunity granted is all comprehensive and applicability of any national law is subject to the waiver of the immunity by UNO.
  • In the present case the UNO has not waived its immunity and hence the national laws cannot be applied in this case.

IMF Loan To Pakistan


Why is it in News?

  • Pakistan has reached an agreement with the IMF to receive $6 billion over the next three years to meet its foreign debt obligations.
  • The loan would act as the 13th bailout since the late 1980s from the IMF, which is going through a BOP crisis prompted by high fiscal and CAD and diminishing foreign exchange reserves.
  • Pakistan has agreed to some of the structural changes as part of the agreement as wanted by the IMF like lining up expenditure with resources, improving the functioning of loss-making state-owned enterprises, curtail the subsidies etc.
  • The structural reforms mandated by the package could result in increase in prices of goods and utilities like gas and electricity, more increase in fuel prices and further devaluation of rupee.

About Lending by the IMF:

  • IMF loans are meant to help member countries tackle balance of payments problems, stabilize their economies, and restore sustainable economic growth.
  • The IMF is not a development bank i.e. unlike the World Bank, it does not finance projects.
  • As a condition for lending, the IMF and the government agree on a program of policies targeted at accomplishing specific, quantified objectives in support of the overall objectives of the authorities' economic program. For example, the nation may obligate to fiscal or foreign exchange reserve targets.
  • In 1991, India was granted loan by IMF after it promised to launch several structural reforms in the coming years. The recent economic reforms of 1990s in India are said to have been introduced at the instance of the IMF-World Bank.


Source: TH

UNSC Resolution 1267


Why is it in News?

UN Security Council designated Jaish-e-Mohammad chief Masood Azhar as a Global Terrorist on 1st May 2019.

What is the UNSC 1267 Resolution?

  • United Nations Security Council Resolution 1267 was adopted unanimously on 15 October 1999 for overseeing the sanction measures against Taliban and Osama Bin Laden. Because of this fact UNSC Resolution 1267 is also called as Al Qaida and Taliban Sanctions Committee.
  • Due to the changing pattern of terrorism, the provisions of UNSC 1267 were further broadened and strengthened by other resolutions.

What happens if a Person is listed in UNSC 1267?

It leads to curtailment of their movement, freeze and seizure of its properties, arms embargo etc. UNSC 1267 empowers the government of that country (where he resides) to take all possible actions against him.

How is the Decision taken by UNSC?

The decision is taken by consensus i.e. all the 15 members have to be on the same page for declaring an organization or a person, at terrorist under UNSC 1267.

Why was Masood Azhar not declared a Global Terrorist until now?

India tried to convince the world to declare Masood Azhar as an International Terrorist post the Mumbai attack (2009), then post Pathankot attack (2016), post Uri attack (2017) and then post Pulwama attack (2019), but all these efforts went in vain as China used its ‘Veto’ in the UN Security Council.

How did China change its Stand now?

Undoubtedly this mellowing of stand by China can pave the path of friendship between India and China, some of the probable reasons for this change in behaviour are:

1. In Wuhan Summit, it was decided that India-China will not take any stand on any issues which can create trouble for either India or China, so this Wuhan Friendship was time and again reminded to the Chinese Government which led to softening of the stand.

2. India too has softened its stand vis-à-vis Belt and Road Initiative of China (BRI) which has gone well with the Chinese Government.

3. China was getting labeled by the World as a country which is acting as bulwark for terrorists which was not going well with the civil society of China and diplomatic officials. Therefore, China wanted to get rid of this label.

4. Pakistan too did not pressurize China more as it already is facing the heat from Financial Action Task Force (FATF) for being a country which provides shelter to terrorists (which may lead to its listing in Black List of FATF), also Pakistan felt that due to poor health and old age of Masood Azhar he is of very little use for Pakistan. This paved the path for listing Masood Azhar as a Global Terrorist.

Source: TH

Global Findex Database


Why is it in News?

According to the Global Findex Database 2017, there has been a significant progress in the last five years which implies a humble growth in the microfinance sector of the country.

  • The Global Findex database is the world’s most comprehensive data set on how adults save, borrow, make payments, and manage risk.
  • This initiative was launched in 2011 by World Bank with the financial help provided by Bill & Melinda Gates Foundation.
  • The database gets published every three years.

Financial Action Task Force (FATF)


Why is it in news?

Condemning the Pulwama attack, FATF had issued a stern statement to Pakistan to comply with the action plan on terror financing or face severe actions.

What is FATF?

  • The Financial Action Task Force (FATF) is an intergovernmental organization founded in 1989 on the initiative of the G7 Countries to develop policies to combat money laundering.
  • In 2001, its mandate expanded to include terrorism financing, so it is also referred to as ‘International Terror Financing Watchdog’. The FATF Secretariat is housed at the OECD headquarters in Paris.

Objective of FATF:

  • The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

Domain of FATF:

  • When FATF was mandated to look into the issues of money laundering only, it set 40 recommendations which countries needed to follow but when the terror financing was included in its domain it further added 9 more recommendations. In totality FATF works through 40+9 Recommendations.
  • In short it can be said that FATF is a ‘policy-making body’ which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

How does FATF work?

  • The decision making body is FATF Plenary which meets thrice a year.
  • FATF uses ‘Peer Review (review by member countries)’ technique to look into the lacunae which criminal exploits. At the end it gives the detailed analysis of each country’s financial architecture.

What is the FATF Listing?

1. FATF Black List:

  • It includes those countries which are non-cooperative in the fight against terror financing and money laundering i.e. they are the part of that nexus.
  • Iran and North Korea are listed in the FATF Black list.

2. FATF Grey List:

  • It includes those countries which have acknowledged that their financial architecture has some lacunae and are working in collaboration with FATF to fix those loopholes.
  • Pakistan, Sri Lanka, Ethopia, Yemen, Syria are some of the countries listed under the Grey list.

What happens when Countries are listed in Grey List?

The listing means downgrading of the country by multilateral lenders like- IMF, World Bank, ADB, EU etc. This leads to poor investment and business flow to the country as investor fears the backlash.

Will Pakistan be affected by Grey Listing by FATF?

Pakistan at present has only $7 billion in its Forex reserve, so Grey Listing will lead to more stringent conditions by IMF in case of bailout. Therefore it will put strain on Pakistan.

Source: TH

UNSC Resolution 1267


Why is it in News?

After the Pulwama attacks in Kashmir, France also condemned the attack and decided to invoke UNSC 1267 Resolution against JeM Chief Masood Azhar.

What is the UNSC 1267 Resolution?

  • United Nations Security Council Resolution 1267 was adopted unanimously on 15 October 1999 for overseeing the sanction measures against Taliban and Osama bin Laden. Owing to this fact, UNSC Resolution 1267 is also called as Al-Qaida & Taliban Sanctions Committee.
  • Due to the changing pattern of terrorism, the provisions of UNSC 1267 were further broadened and strengthened by other resolutions.

What happens if a person is listed in UNSC 1267?

It leads to curtailment of their movement, freezing and seizure of their properties. UNSC 1267 empowers the government of that country (where they resides) to take all possible actions against them.

How is the decision taken by the UNSC?

Decision is taken by consensus i.e. all the 15 members have to be on same page for declaring an organisation or a person a terrorist under the UNSC 1267 Resolution.

Why Masood Azhar is not declared as a Terrorist under UNSC 1267?

Due to opposition by China, UNSC fails to declare Masood Azhar as an International Terrorist.

Source: TH

Most Favored Nation Status (MFN)


Why is it in News?

India had withdrawn the MFN status from Pakistan due to the Pulwama terrorist attack in February 2019.

Background of MFN:

If we look at the WTO broadly we will find that WTO has implemented three major agreements namely:

1. General Agreement on Tariff & Trade (GATT) - deals with merchandise trade

2. General Agreement on Trade & Services (GATS) - deals with Services

3. Trade-related Aspects of Intellectual Property Rights (TRIPS) - deals with issue of Intellectual Property Rights.

Under these three agreements of WTO, the common thread which is running is the concept of MFN.

What is the MFN Status?

Under rules of the World Trade Organisation (WTO), a member country is not allowed to discriminate between trade partners and if a special status is granted to one trade partner, the country is required to extend it to all members of the WTO. This concept of treating all member countries alike is referred to as Most Favored Nation Status.

Example to illustrate this:

  • Say India grants Tax Exemption to the imports coming from Bhutan, then as per the provisions of MFN, it shall extend the same tax exemption to all the members of WTO.
  • Since, the formation of WTO, India has given MFN status to all the member countries of WTO but India has not been accorded the MFN status from Pakistan.

Is there any Exception to MFN?

Yes, say India enters into a Free Trade Agreement (FTA) or Preferential Trade Agreement (PTA) with BRICS/ BIMSTEC, then the imports originating from the group of these countries will have certain tariff exemptions which will go against the rules of MFN (which asks that imports of all WTO members shall be treated alike), but such exemptions are allowed under the WTO Guidelines.

Which Article of GATT discusses the Provision of MFN?

Article 1 of GATT has the provisions related to MFN status.

Will Withdrawal of MFN Status hurt Pakistan?

Trade of India with Pakistan is meager ($2billion) hence; the withdrawal of MFN Status is more symbolic rather than having economic impact on Pakistan’s economy. Other aspect of looking at the situation is that it will encourage illegal trade.

Source: TH, IE, Livemint editorials

Most Favored Nation Status (MFN)


Why is it in News?

India has recently withdrawn MFN Status from Pakistan due to terrorist attack at Pulwama.

What is the MFN Status?

Under rules of the World Trade Organization (WTO), a member country is not allowed to discriminate between trade partners and if a special status is granted to one trade partner, the country is required to extend it to all members of the WTO. This concept of treating all member countries alike is referred to as Most Favored Nation Status.

Say India grants Tax Exemption to the imports coming from Bhutan, then as per provisions of the MFN in GATT, it shall extend the same Tax Exemptions to all the members of WTO. Since, the formation of WTO, India has given MFN Status to all the member countries of WTO but India has not been accorded MFN Status from Pakistan.

Will Withdrawal of MFN Status hurt Pakistan?

Trade of India with Pakistan is meager ($2billion); so withdrawl of MFN Status is more symbolic rather than having economic impact on Pakistan economy. Other aspect of looking at the situation is that it will encourage illegal trade.