Reciprocity refers to the reduction of a country’s import duties or other trade restraints in return for comparable trade concessions from another country. The concept involves the adjustment of one nation’s tariff rates in exchange for similar adjustments from another nation. The principle of reciprocity is accepted by the WTO as a necessary trade liberalisation tool. However the content of the WTO agreements qualify this concept by making it applicable to developed country members. WTO legal texts are premised on the acceptance of the differences in the economies of the member states. Throughout the texts there are references to different obligations between developed and developing countries; an acknowledgement that the principle of reciprocity in trading arrangements cannot achieve fairness if applied indiscriminately. Effectively non-reciprocity is the concept which the WTO has enshrined in its rules in order to achieve a fair multi-lateral trade environment. It is important to analyse how this concept fares in free trade agreements involving developed and less-developed parties. This paper will concentrate on the EU agreement with ACP states, the Cotonou Agreement.

WTO Legal Texts

There are many provisions in the WTO legal texts which recognise the differences between developed and less-developed members of the WTO, and as such, create less stringent obligations for the less-developed members. The following provisions are pertinent.

1. Marrakesh Agreement

Concessions for Least-developed countries
Art XI.2 Marrakesh Agreement provides that:

“The least-developed countries recognized as such by the UN will only be required to undertake commitments and concessions to the extent consistent with their individual development, financial and trade needs or their administrative and institutional capabilities.”

In addition differential treatment for less-developed parties is recognised in the Marrakesh Declaration (1994).

2. Agreement on Agriculture

The preamble to this agreement stresses that in implementing their commitments on market access, developed country Members would take into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members. The preamble further notes that;

“commitments made under the reform programme should be made in an equitable way among all Members, having regard to non-trade concerns, including food security and the need to protect the environment, having regard to the agreement that special and differential treatment for developing countries is an integral element of the negotiations…”

Art.6 of the agreement exempts developing countries from domestic support reduction commitments. In so doing the article accepts that the developing countries are in a different predicament than developed countries. In art.6 there is an acceptance that assistance, whether direct or indirect, to encourage agricultural and rural development is an integral part of the development programmes of developing countries.

Export Subsidy Commitments.

Art.9.1 deals with export subsidies which are subject to reduction commitments. However art.9.4. goes further to make a distinction between the obligations of developing and developed countries. Under the later paragraph developing countries are not required to undertake reduction commitments in respect of the export subsidies listed under art.9.1 during the implementation period.

Disciplines on Export Prohibitions and Restrictions.

Developing countries are not required to follow art.12 which provides for rules to be followed where any Member institutes any new export prohibitions or restrictions on foodstuffs in accordance with paragraph 2(a) of Art.XI of GATT 1994. A developing country is only required to follow art.12 if it is a net-food exporter of the specific foodstuff concerned.

Special and Differential Treatment.

The concept is specifically provided for under art.15. which reads:

“1. In keeping with the recognition that differential and more favourable treatment for developing country Members is an integral part of the negotiations, special and differential treatment in respect of commitments shall be provided as set out in the relevant provisions of this Agreement and embodied in Schedules of concessions and commitments.
2. Developing country Members shall have the flexibility to implement reduction commitments over a period of up to 10 years. Least-developed country Members shall not be required to undertake reduction commitments.”

3. Agreement on the Application of Sanitary and Phytosanitary Measures.

The preamble to this agreement recognizes that developing countries may encounter special difficulties in complying with the sanitary or phytosanitary measures of importing Members, and as a consequence in access to markets.

Special and Differential Treatment.
As such art.10. makes provision for special and differential treatment for developing countries:

“1. In the preparation and application of sanitary or phytosanitary measures members shall take account of the special needs of developing country Members and in particular of the least-developed country Members.

2. Where the appropriate level of sanitary or phytosanitary protection allows scope for the phased introduction of new sanitary or phytosanitary measures, longer time-frames for compliance should be accorded on products of interest to developing country Members so as to maintain opportunities for their exports.

3. With a view to ensuring that developing country Members are able to comply with the provisions of this Agreement, the Committee is enabled to grant to such countries, upon request, specified, time-limited exceptions in whole or in part from obligations under this Agreement, taking into account their financial, trade and development needs.”

Delayed Application
Least developed countries were given an option to delay the application of the agreement for a period of five years following the date of entry into force of the agreement. Other developing country Members were given a period of two years. These exceptions were based on the recognition that application of the provisions of the agreement could be hindered by lack of technical expertise, infrastructure or resources on the part of developing and least-developed Members.

Publication of Regulations
An important provision is Annex B which deals with issues of transparency with regards to sanitary and phytosanitary regulations. In terms of para.2 of the annex members are required (except in urgent circumstances) to allow a reasonable interval between the publication of a sanitary or phytosanitary regulation and its entry into force in order to allow time for producers in exporting members to adapt their products and methods of production to the requirements of the importing Member. This provision makes special mention of developing countries.

4. Agreement on Textiles and Clothing

The preamble to this Agreement makes reference to “special treatment” being accorded to the least-developed country Members. One can find elaborations of this concept in art.1.2.

Market Access
This provision speaks of permitting meaningful increases in market access possibilities for small suppliers and the development of significant trading opportunities for new entrants in the field of textiles and clothing trade. A footnote to this provision further expands the provision by stating that:

“To the extent possible, exports from a least-developed country member may also benefit from this provision.”

Transitional Safeguards
Article 6 of the agreement recognizes that during the transition period it may be necessary to apply a specific safeguard mechanism (referred to in the agreement as “transitional safeguard”). The transitional safeguard should be applied as sparingly as possible. However Member countries are not given the same obligations with respect to the application of the transitional safeguard. Paragraph 6 of art.6 provides that “least-developed country Members shall be accorded treatment significantly more favourable than that provided to the other groups of members….”

5. Agreement on Technical Barriers to Trade

Special and Differential Treatment
Article 12 requires Members to provide differential and more favourable treatment to developing country Members. In particular Art.12.3. seeks to improve market access for products from developing countries by stipulating that technical regulations, standards and conformity assessment procedures should not create obstacles to exports from developing countries. Further art.12.8 provides developing countries with an option to seek specified and time-limited exceptions in whole or in part from obligations under the agreement.

6. Agreement on Trade-Related Investment Measures (TRIM)

Whilst art.2 of this agreement requires Member countries to apply the national treatment principle with regards to any TRIM, art.4 permits developing country Members to deviate temporarily from this provision. The transitional arrangements provided for under art.5 allow developing and least-developed countries longer periods to effect the implementation of the TRIMs agreement.

7. Agreement on the Implementation of Article VI of GATT 1994

Article 15 recognizes that special regard must be given by developed country Members to the special situation of developing country members when considering the application of anti-dumping measures. It is a requirement to explore possibilities of constructive remedies before applying anti-dumping duties where they would affect the essential interests of developing country Members.

8. Agreement on Subsidies and Countervailing Measures

Subsidies contingent, in law or in fact, upon export performance are prohibited under art. 3.1. of the Agreement on Subsidies and Countervailing Measures. However the prohibition is qualified by art.27 which recognizes that subsidies may play an important role in the economic development programmes of developing countries. In this respect the prohibition does not apply to developing country Members referred to under Annex VII to the agreement. Other developing country Members were granted a period of eight years from the date of entry into force of the WTO Agreement during which the prohibition will not apply.

9. Agreement on Safeguards

No safeguard measures can be applied against a product originating in a developing country as long as its share of the imports of the product concerned in the importing Member does not exceed 3 per cent. This rule is applicable provided that developing country Members with less than 3 per cent import share collectively account for not more than 9 per cent of total imports of the product concerned. The agreement also grants developing countries the right to extend the period of application of a safeguard measure for a period of up to two years beyond the maximum period of eight years as stipulated by art. 7.3.

10. General Agreement on Trade in Services

Although GATS-speak is about achieving higher levels of liberalisation of the trade in services amongst all member countries there is an acceptance that less well off countries are not required to make commitments which are contrary to their development needs.

Subsidies
Article XV recognizes that, in certain circumstances, subsidies may have distortive effects on trade in services. The article requires WTO members to negotiate multilateral disciplines to avoid such trade-distortive effects. However it is a requirement that such negotiations should recognize the role of subsidies in relation to development programmes of developing countries. In this respect it is expected that a measure of flexibility would be applied in order to take into account the needs of developing countries.

Negotiation of Specific Commitments
Higher levels of liberalization are to be achieved through the negotiation of specific commitments. The process of liberalization is qualified by art.XIX.2 which gives flexibility to individual developing countries to open up fewer sectors in line with their development situation.

11. Agreement on Trade-Related Aspects of Intellectual Property Rights

Exemptions
The TRIPS agreement speaks of recognizing “the special needs of the least-developed country Members in respect of maximum flexibility in the domestic implementation of laws and regulations in order to enable them to create a sound and viable technological base.” Art. 66 exempted the least-developed members from applying the TRIPS agreement, other than arts. 3,4 and 5, for a period of 10 years from the date of application of the agreement. The exemption is based on the acknowledgement that these countries have economic, financial and administrative constraints. Developing country Members were granted a four-year period under art.65.2.

Technical Cooperation
Developed country Members are required to provide technical and financial cooperation in favour of developing and least-developed country members.

12. Understanding on Rules and Procedures governing the Settlement of Disputes

In the settlement of disputes, special procedures were provided for to deal with cases involving least-developed countries. Art.24 of the Understanding requires members to exercise due restraint in raising matters involving least-developed country members. Even if nullification or impairment is found to result from a measure taken by a least-developed country, complaining parties are required to exercise due restraint in asking for compensation.

13. Understanding on the Balance-of-Payments Provisions of the GATT

The Understanding makes provision for simplified procedures for balance-of-payments consultations for developing and least-developing countries under para.8 of this Understanding.

14. Ministerial Decision on Measures in Favour of Least-Developed Countries

This decision recognizes the specific needs of the least-developed countries in the area of market access. It recognizes that continued preferential access remains an essential means for improving the trading opportunities of least-developed countries. The decision is important because it reaffirms the need to fully implement paragraphs 2(d), 6 and 8 of the Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries.

Paragraph 6 of the 1979 Decision reads:

“Having regard to the special economic difficulties and the particular development, financial and trade needs of the least-developed countries, the developed countries shall exercise the utmost restraint in seeking any concessions or contributions for commitments made by them to reduce or remove tariffs and other barriers to the trade of such countries, and the least-developed countries shall not be expected to make concessions or contributions that are inconsistent with the recognition of their particular situation and problems.”

The 1979 Decision is also important with respect to the principle of non-reciprocity concerning trade relations between developed and developing countries. This concept is provided for under paragraph 5:

“The developed countries do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing countries, i.e., the developed countries do not expect the developing countries, in the course of trade negotiations, to make contributions which are inconsistent with their individual development, financial and trade needs. Developed contracting parties shall therefore not seek, neither shall less-developed contracting parties be required to make, concessions that are inconsistent with the latter’s development, financial and trade needs.”

15. The General Agreement on Trade and Tariffs (GATT)

The 1979 Decision is further amplified by the GATT.

Tariff Negotiations
Art. XXVIII of GATT recognizes the need for negotiations on a reciprocal and mutually advantageous basis for the substantial reduction of tariffs and other charges on imports and exports. However para.3 of this article goes on to provide that “Negotiations shall be conducted on a basis which affords adequate opportunity to take into account ….the needs of less-developed countries for a more flexible use of tariff protection to assist their economic development and the special needs of these countries to maintain tariffs for revenue purposes…”

GATT Part IV
Article XXVIII is qualified with respect to reciprocity by the provisions of Part IV of the GATT. There is an acknowledgment under this part of the GATT that global development could not be sensibly pursued without addressing the staggering economic disparities between the member states of the WTO. International trade could only enhance global economic development if certain concessions were made by developed countries. Some of these concessions are evident in Part IV of GATT. Part IV of GATT is in short, a market access commitment made by developed countries for the benefit of developing countries. Not vice versa.

What did developed countries commit themselves to?
Part IV of GATT lists certain principles and objectives upon which the commitments of developed countries are based. It is essential to note some of these principles.

• Members considered that export earnings of the less-developed contracting parties can play a vital part in their economic development and that the extent of this contribution depends on the prices paid by the less-developed contracting parties for essential imports, the volume of their exports, and the prices received for these exports ;
• Members agreed that:
o Given the continued dependence of many less-developed contracting parties on the exportation of a limited range of primary products, there is need to provide in the largest possible measure more favourable and acceptable conditions of access to world markets for these products, and wherever appropriate to devise measures designed to stabilize and improve conditions of world markets in these products, including in particular measures designed to attain stable, equitable and remunerative prices, thus permitting an expansion of world trade and demand and a dynamic and steady growth of the real export earnings of these countries so as to provide them with expanding resources for their economic development; and
o That there is need for increased access in the largest possible measure to markets under favourable conditions for processed and manufactured products currently or potentially of particular export interest to less-developed contracting parties; and
o The developed contracting parties do not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of less-developed contracting parties.

Based on these principles and agreements developed countries committed themselves to the following;

Elimination of barriers
Developed countries are obliged to accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to less-developed contracting parties, including customs duties and other restrictions which differentiate unreasonably between such products in their primary and in their processed forms.

Restraint on customs duties
Developed countries are obliged to refrain from introducing, or increasing the incidence of, customs duties or non-tariff import barriers on products currently or potentially of particular export interest to less-developed contracting parties.

Restraint on new fiscal measures
Developed countries are obliged to refrain from imposing new fiscal measures which would hamper, or which hamper, significantly the growth of consumption of primary products, in raw or processed form, wholly or mainly produced in the territories of less-developed contracting parties, and which are applied specifically to those products.

Although the WTO rules are premised on equal treatment of trading partners, the provisions discussed above show that exceptions to this rule exist in the form of concessions made for less-developed parties. These concessions are premised on the concept of non-reciprocal trading arrangements, and as further amplified by art.XXXVII of the GATT. Simply put, less-developed countries are not expected to match the obligations imposed on developed countries by the multilateral trade framework. This submission is mindful of the present impasse over the Doha round, a fact which only shows that some of the concessions made for the benefit of the less-developed countries are not being implemented.

A Contrary View?

The WTO rules indicate that reciprocal trade is the most appropriate arrangement, but it is clearly a long-term objective which at present is suspended by virtue of the vast economic differences amongst member states. This is the only sensible interpretation of the preamble to the Marrakesh Agreement where it reads:

“being desirous of contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed at the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations”.

The above provision may appear to be a contrary to the rest of the WTO rules which treat less-developed countries differently and do not expect them to make reciprocal commitments to developed countries. However it is submitted that there is no contradiction with the rest of the WTO legal texts. The preamble shows an intent to establish reciprocity. In other words, the preamble does not establish reciprocity, but it shows that the WTO wishes to have reciprocity established, perhaps in the long run when the differences amongst the member states would have been reduced for reciprocity to make sense. At present the WTO agreements accept that non-reciprocity is the guiding principle for trade amongst unequal nations.

The Cotonou Agreement

In June 2000, the ACP states signed the Cotonou Agreement with the EU. The agreement replaces the Lome Conventions which have defined the trade relations between the ACP and EU countries. The agreement is described as an Economic Partnership Agreement (EPA). The agreement comes with the blurb that “The partnership shall be centred on the objective of reducing and eventually eradicating poverty consistent with the objectives of sustainable development and the gradual integration of the ACP countries into the world economy”.

Timing
The agreement is characterised by hasty arrangements. Negotiations on the new trading arrangements were timetabled from September 2002 to December 31 2007, after which a new trading arrangement shall come into force by 1 January 2008.

Tariff dismantlement
Under art.36 and 37 the agreement seeks to remove “progressively barriers to trade between” the ACP-EU states. The agreement promises to “take into account sensitive sectors, and the degree of asymmetry in terms of timetable for tariff dismantlement, while remaining in conformity with WTO rules then prevailing.”

Special and Differential Treatment
Art.34.4. promises to implement trade cooperation “in full conformity with the provisions of the WTO, including special and differential treatment, taking into account of the Parties’ mutual interests and their respective levels of development.” The promise is repeated under art.35.3;

“…the Parties reaffirm their attachment to ensuring special and differential treatment for all ACP countries and to maintaining special treatment for ACP LDCs and to taking due account of the vulnerability of small, landlocked and island countries.”

Equality of Partners
During the preparatory period the non-reciprocal trade preferences applied under the Fourth ACP-EC Convention will be maintained, after which they will be dropped. Thereafter ACP-EC cooperation will based on the fundamental principle of “equality of the partners and ownership of the development strategies.” In short, reciprocal trading arrangements will be introduced by January 1 2008, these being based on the rationale that the new arrangement is an economic partnership of equal partners. Essentially the arrangement ushers in free trade areas. In the words of a senior EU official:

“The new trade regime envisaged by the Agreement leads to a radically different perspective for the ACP countries. To achieve a stable trade arrangement that is fully compatible with the global trading system under the World Trade Organisation, the Agreement foresees the gradual introduction of reciprocity in ACP-EU trade. This would take the form of WTO-compatible economic partnership agreements that would comprise free trade areas.”

The agreement has a diverse range of provisions, they are not all relevant to the present discussion. It is the introduction of reciprocal trading arrangements that this analysis will concentrate upon, in particular as the agreement relates to the relevant legal texts of the WTO as described above.

Dubious Benefits
The multilateral arrangement at the WTO does not demand reciprocity from less-developed countries. The concession is premised upon the very unequal economic conditions between developed and less-developed countries. It is not apparent why ACP states which are less-developed countries would enter into a trade agreement which places reciprocity at the very centre of the deal. The deal itself is pushed by an unreasonable haste. It is not apparent why ACP states accepted a preparatory period which falls far short of the maximum period permitted by the GATT. In terms of the WTO rules this period can even go beyond ten years in exceptional circumstances.
It is not convincing to argue that reciprocity was introduced into the agreement just to make the agreement compatible with the WTO rules, the point is there is no need for this type of agreement in the first place. A free trade agreement between unequal partners is a recipe for disaster.

Reciprocity in FTAs

An important question is whether there is any sense in reciprocity in North-South trade agreements. Caroline Freund , in a study at the World Bank, argues that there is little empirical support for reciprocity in North-South trade agreements. Her study finds evidence that developed countries extract greater trade concessions from less-developed countries, leading to a modified form of reciprocity in North-South agreements. From Freund’s study the following points are pertinent:

- Reciprocity may be especially damaging in North-South agreements, where asymmetries in size and bargaining power suggest that low-income countries will have to make relatively larger trade concessions to achieve an agreement with a high-income country; and
- North countries extract significantly more market access in South countries than South countries extract from the North.

Freund’ study suggests that given that the GATT regime does not require reciprocity from less-developed countries, the developed countries’ desire for reciprocity in North-South trade agreements may be motivated by designs different from those upon which reciprocity in the GATT system is based. FTAs can be used to circumvent obstacles created by obligations under the WTO system, in this case, it is arguable that precisely because less-developed countries have not been required to make reciprocal concessions at a multilateral level, developed countries have used regional agreements to extract concessions which are unachievable under the WTO system. On this analysis it is laughable that the Cotonou agreement is lauded as a poverty eradicator, and a tool for the economic growth of ACP states. Specifically because the EU has achieved reciprocal trade with the ACP states, it will no longer have to bother with implementing its commitments under Part IV of the GATT. The ACP states were deceived.

What should be done?

The Cotonou agreement is an unfair treaty. Reciprocity between unequal parties is bound to benefit the stronger party. Defendants of the reciprocity clause in the Cotonou agreement claim that it is necessary for the treaty to be WTO compatible. The strange outcome is a burden at bilateral level when it is an advantage and an opportunity at a multilateral level. Again the question is asked, why go into the agreement in the first place if it obliterates an opportunity? The Cotonou agreement is not about ACP firms and producers increasing their market access in the EU. It is about EU firms, producers and service providers increasing their market shares in the ACP states. The agreement comes with promises of “development co-operation”. But is this worth the price of reciprocal trade?

The terms of the Cotonou agreement should be revisited. The agreement is not inflexible. It can be renegotiated, it must be. If any party deems the agreement useless, then nothing stops that party from denouncing it. Like any treaty it can be questioned on the basis of fraud or any defence available in international law. It would be interesting to investigate the whole process which led to the adoption of this agreement for any evidence of undue influence, arm-twisting, or even fraud.

The most sensible approach does not seem to be crying for the continuation of trade preferences. These have not, and will not develop the ACP states. Instead the ACP states should focus on home-driven growth strategies, regional integration, and persistently demanding the implementation of development-friendly commitments made by developed countries under the WTO agreements. This is not an overnight plan, but it is a long-term development strategy. The strategy avoids the dubious benefits of a shortsighted Cotonou agreement.