WORLD TRADE
ORGANIZATIONTN/CTD/W/16
11 October 2002
(02-5518)
Committee on Trade and Development
Special SessionOriginal:  English
SPECIAL AND DIFFERENTIAL TREATMENT PROVISIONS
Concept Paper from Hungary
The following communication, dated 4 October 2002, has been received from the above
delegation.
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I. BACKGROUND
1. In pursuance of the mandate given by Ministers in paragraph 44 of the Doha Ministerial
Declaration, the Trade Negotiations Committee (TNC) at its meeting held on 28 January - 1 February
2002, decided that " ….the review of all special and differential treatment provisions with a view to
strengthening them and making them more precise, effective and operational … shall be carried out
by the Committee on Trade and Development in Special Sessions."  It was also agreed that the Special
Session carries out the work programme on special and differential (S&D) treatment set out in theDecision on Implementation-Related Issues and Co ncerns, which Ministers endorsed in paragraph 44
of the Doha Ministerial Declaration.
2. In order to give effect to the mandate given by Ministers, a number of WTO Members, with
reference to paragraph 12.1 (i) of the Decision on Implementation-Related Issues and Concerns,
submitted proposals aimed at converting various special and differential treatment provisions in WTO
agreements and decisions into mandatory ones.
3. The delegation of Paraguay, referring to paragraph 44 of the Doha Ministerial Declaration,
submitted a proposal on the Enabling Clause
1 in TN/CTD/W/5 dated 24 May 2002.  The core idea of
this proposal, which was supported by a large number of developing countries during the subsequent
discussions at the Special Sessions of the Committee on Trade and Development (CTD), was to
ensure the implementation of the Enabling Clause in  such a way as to prohibit any differentiation
(discrimination) among developing countries in access to the benefits of national Generalized Systemof Preferences (GSP) regimes.  Paragraph 10 of the proposal specified 6 of the criteria currently used
by GSP-providing countries for differentiation among  developing countries, reliance on which would
be made impossible in the future even by way of asking for a specific waiver to that effect.
2  Several
of these criteria proposed to be prohibited deal with the level of economic development and
competitivity of beneficiary countries and the proposal asserted that they were based on subjective,arbitrary and unilateral positions and gave rise  to discrimination among developing countries.
4. In order to move forward the consideration of this proposal's legal and practical implications -
as called for in the work programme on S&D tr eatment endorsed by Ministers at Doha - the
delegation of Hungary submitted a number of questions in its communication of 8 July 2002
                                                     
1 Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing
Countries, Decision of 28 November 1979, L/4903)
2 See paragraph 10 of TN/CTD/W/5 and paragraph 21 of TN/CTD/W/5/Add.1.TN/CTD/W/16
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(TN/CTD/W/10) and requested written replies.  The most important question from the point of view
of the Hungarian delegation and the answer provided thereon was the following:
Question in paragraph 4.5 of TN/CTD/W/10:
"Does it follow from the proposal that if a GSP providing country wishes to avoid granting such
preferences to richer countries, the only way is to abolish its scheme altogether, or does Paraguay see
any legal way to limit the availability of preferences to those WTO Members with a lower level of
economic development?"
Answer in paragraph 11 of TN/CTD/W/5/Add.2:
"No, within the scope of the Enabling Clause Paraguay does not see any legal way to limit the
availability of preferences to those WTO Members with a lower level of economic development,
avoiding at the same time granting preferences to richer countries".
5. The implications stemming from the answer provided by the delegation of Paraguay, again
supported by a number of developing country delegations during the discussions at the SpecialSession, are far-reaching, especially for GSP provider countries at an intermediate level of
development, like Hungary.  The Hungarian delegation is not able to support an interpretation of the
Enabling Clause (or agree to its modification to that effect), according to which a country like
Hungary would be obliged either to provide trade benef its to countries that are richer than herself or to
stop operating a GSP system in favour of poorer de veloping countries in real need of preferential
market access.
6. Hungary believes that the provision of preferential market access conditions for developing
countries is one of the most tangible and effective means of supporting the development process of
countries at a lower level of economic development than ourselves.  The Government of Hungary
used this important policy tool in the past close to 30 years and wishes to keep on doing so in thefuture. However, an obligation to provide continuous economic assistance through preferential market
access for countries more developed and competitive than us in order to be allowed to maintain our
GSP-regime would not be acceptable for the Hungarian Government, for our economic operators and
for the public at large.  The Hungarian delegation believes that setting such an obligation would be
unjustifiable economically and politically and would also threaten to defeat, at least partially, the very
objective of the Enabling Clause.  Hungary fears that those developing countries would be the real
losers of such an interpretation that need preferential market access the most.  The acceptance of theproposed interpretation would also have systemic implications for our organization, as it would prove
that the WTO is incapable of dealing with the fact that WTO Members, and among them developing
countries, form a very heterogeneous group, with countries and territories having different levels of
development, different interests and needs.
7. Hungary feels that the above considerations are not specific to its individual case.  There are
at least two groups of WTO Members at a comparable level of economic development, which face the
same or a similar dilemma: GSP-operating WTO Members not having declared themselves as
developing countries in the organization, as well as more advanced developing countries, which may
consider the setting up of a GSP system in favour of their poorer developing partners.
8. Against the above background the following briefly expands on Hungary's understanding of
the origin of and intent behind the Enabling Clause and outlines possible options for the necessary
clarifications with a view to make these provisions more precise, effective and operational.TN/CTD/W/16
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II. THE ORIGIN OF AND INTENT BEHIND PART IV OF THE GATT AND THE
ENABLING CLAUSE
9. GATT CONTRACTING PARTIES started to seriousl y consider the adoption of measures for
the maintenance and expansion of export earnings of less-developed countries to the development and
diversification of their economies in the early 1960s.  In 1961 a Declaration was adopted on the"Promotion of the Trade of Less-Developed Countries"
3.  Then at the Ministerial meeting in
May 1963 Ministers recognized  "the need for an adequate legal and institutional framework to enable
the CONTRACTING PARTIES to discharge their responsibilities in connection with the work of
expanding the trade of the less-developed countries" and the amendment of the GATT was initiated to
introduce a Part IV.  The Protocol Amending the GATT to Introduce a Part IV on Trade and
Development was adopted on 8 February 1965 and entered into force on 27 June 1966.
10. As we all know, when referring to the group of countries and territories that should benefit
from the individual and joint action necessary to fu rther their development and to ensure that they
secure a share in world trade that is commensura te with the needs of their economic development,
Part IV of the GATT consistently uses the term " less-developed countries" .  This expression clearly
indicates the relationship between the levels of development of countries that should benefit from
S&D treatment, and those which should individually and jointly provide it.  In short, it is intended that
countries at a higher level of economic development should provide S &D treatment for those that are
less-developed than they are.
11. After intergovernmental negotiations held under the auspices of UNCTAD resulted in the
adoption of the GSP, the legal possibility for its implementation, first through the Decision of 25 June
19714, then through the adoption of the Enabling Cl ause, was created in the GATT.  Although both
the 1971 Decision and the Enabling Clause use the term " developing countries",  which came into use
replacing the earlier term "less-developed countries", there is no evidence to assume that its meaning
and the relationship between the levels of development of providers and beneficiaries of GSP were
meant to change.
12. Due to differences in specific characteristics and circumstances of individual countries, both
potential providers and beneficiaries, the Enabling Clause provided right from the start certain
flexibilities for the shaping of national GSP-schemes.   First of all, the establishment and maintenance
of such a system is not mandatory, the Enabling Clause simply permits any WTO Member who
wishes to set up a GSP regime to deviate from Article I of the GATT, provided that the conditions in
the instrument are met.
13. The Enabling Clause furthermore indicates that the S &D treatment, through the operation of a
GSP system, should be provided on a dynamic basis.  Paragraph 3c of the Enabling Clause states that
GSP schemes should be designed and, if necessary, modified to respond to the needs of developing
countries.  Hungary considers that paragraph 3c in fact provides the basis for taking into account
changes in individual development levels as well as the development, financial and trade needs ofindividual developing countries.
14. The flexibilities embodied in the above referred provisions became increasingly important
over the past decades.  It is well known that the term "less-developed" or later "developing" country
was never defined and the original practice of self-election, self-selection remained applicable until
this day.  At the same time a very substantive differentiation has been taking place among theparticipants of the multilateral trading system, as we ll as within this group of countries, regarding the
overall and sectoral levels of development and competitiveness.  This process brought about deep
changes in the relative levels of development of individual countries.  A number of developing
                                                     
3Decision of 7 November 1961.
4Generalized System of Preferences – Decision of 25 June 1971 – (L/3630).TN/CTD/W/16
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countries at a higher level of development caught up with some of the GSP providing countries and
even overtook them in terms of overall economic development or sectoral competitiveness, in
particular in areas where they have huge comparative advantages.  Despite these changes no WTO
Member has changed its self-classification, no Member has renounced its "developing country" status.
This led to the current situation, which can be aptly illustrated by the example of Hungary, a GSPproviding country at an intermediate state of economic development.
15. Hungary has a per capita GDP level of about US$5.000, which is above most developing
countries, but well below developed economies and even many of the more advanced developing
countries, especially in Asia and in Latin America.  Many of these countries became globally
competitive producers and exporters even in the most sophisticated industrial sectors, while several of
them remained important suppliers with improved technologies in more traditional sectors such as
agriculture.  Still, the Hungarian Government has been operating a rather generous GSP system since1 January 1972, with tariff preferences for a wide range of products produced in developing countries.
The scheme is applied on a permanent basis, i.e. it does not involve time limits or renewal
requirements.  There are no quantitative ceilings or any special safeguard mechanism for the products
concerned.  The GSP regime does not contain a priori sectoral limitations or exclusions.  Under the
Hungarian GSP system, since 1978, all products orig inating from the least-developed countries enjoy
duty and quota-free treatment in Hungary.
16. Due to Hungary’s intermediate level of development, there is, however, a limitation on the
scope of beneficiaries based on their level of development: the Hungarian legislation maintains the
right of not providing GSP benefits to countries with a higher level of economic development – as
measured by per capita GDP levels – than our own.
17. Thus the Hungarian GSP regime - like that of a number of other GSP providers - contains at
least the following two of the criteria mentioned in paragraph 10 of the proposal by Paraguay:
development indices and graduation.  According to Paraguay, these criteria are discriminatory and, as
such, are illegal at present.  Paraguay furthermore states, that Members should not be allowed to use
such criteria, even through obtaining a waiver.
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18. As this interpretation is not acceptable for the reasons spelt out above, Hungary puts forward
the following possibilities for clarifying the provisions of the Enabling Clause.
III. POSSIBILITIES FOR CLARIFYING THE COMMITMENTS STEMMING FROM
THE ENABLING CLAUSE
19. In order to clarify the commitments stemming from the Enabling Clause, the Members of the
WTO should adopt an agreed interpretation containing the following elements:
20. First, it should be spelt out that the terms " developing country"  and " less-developed country"
have equivalent meaning and the use of the former one in GATT/WTO provisions does not change
the original intent of the Enabling Clause: i.e. to provide a legal possibility for more developed
countries to grant trade preferences to the less-developed ones, notwithstanding the principle of Most-
Favoured Nation (MFN) contained in Article I of the GATT.
21. Second, it should also be spelt out clearly that it is not discriminatory in the context of the
Enabling Clause, if the GSP scheme of a Member does not cover, in line with the original intent of the
Enabling Clause, more developed countries than itself.  This clarification is all the more necessary
because, as spelt out above, the absolute and even more the relative levels of development and
                                                     
5 Paragraph 21 of TN/CTD/W/5/Add.1 by Paraguay reads:  "Any waiver must be in conformity with the
already agreed and established principles of the multilateral trading system; in other words, preferences must be
generalized, non-reciprocal and non-discriminatory."TN/CTD/W/16
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competitiveness of various countries change fast, and previously less developed countries often
overtake GSP providers, which originally had a higher level of development.
22. The following question is how to give practical effect to the proposed agreed interpretation.
There are three options to achieve this goal and th ereby to maintain the necessary flexibility for the
operation of national GSP schemes:
(a) The relative approach  was already raised by a number of developing countries
during the discussions at the Special Session of the CTD.  This would mean that no
WTO Member would be obliged to provide GSP benefits to countries with higher
levels of development and competitiveness.  An agreed set of economic indices
should be elaborated for Members to base their decisions on.  This approach could be
the least controversial to accept for the WTO Membership and would be easy to
operate at the national level: GSP regimes could be shaped relatively easily on thisbasis.  As a further advantage such an approach would make it easier for more
advanced developing countries, whose level of economic development is comparable
to, for example, that of Hungary, to op erate GSP schemes of their own and provide
preferential market access to less advanced developing countries without having to
extend that treatment to developing countries at a relatively higher level ofdevelopment.
The relative approach has, however, also a number of deficiencies.  First of all, it
would result in an extremely complex web of GSP providers and beneficiaries, as
each provider could have a different set of GSP beneficiaries depending on their
relative relationship of development indices.  This would create transparencyproblems to start with, but the predictability of the GSP benefits would also be greatly
limited. With the fast changes in the world economy and the economic situation of
individual countries, the list of benefi ciaries of national GSP schemes would change
constantly, reflecting changes in the relative levels of development.  Furthermore, as
the economic indices used for establishing the relative development position ofcountries would be probably expressed in US$ or some other internationally used
currency, any change of exchange rates, especially more substantial depreciations or
appreciations of national currencies could instantly and even repeatedly overturn the
relative relationship, turning more developed countries into less developed ones and
vice versa, requiring corresponding changes in the lists of GSP beneficiaries.
(b) The absolute approach would involve the establishment of a uniform threshold,
defined through the use of agreed economic indices relating to the level of
development, above which a country could not claim benefits from GSP providing
countries.  As a major advantage this approach would greatly simplify the way of
defining GSP beneficiaries and would make this determination more transparent.
Furthermore, by having a uniform list of beneficiaries, there would be a much higherlevel of coherence among national GSP schemes.  While the effects of economic
changes or currency movements would not be fully eliminated, their effect on the list
of GSP beneficiaries would clearly be more limited than in the case of the relative
approach.  Thus, there would be a higher level of transparency and predictability for
both GSP providers and beneficiaries concerning the country coverage of nationalGSP schemes.
This approach has also a number of disadvantages.  First of all, it could be extremely
difficult to get consensus on the principle and even more on any specific level of
economic indicators.  The definition of such indices would automatically exclude or
include a country from the beneficiaries of all national GSP schemes and thus fromall trade benefits.  Furthermore, considering that there are a number of WTOTN/CTD/W/16
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Members operating GSP schemes with quite low levels of development, a rather low
common threshold would have to be established in order to avoid any obligation for
less advanced developing countries to help more developed ones.  Thus a large
number of the present GSP beneficiaries would be instantly eliminated from a
uniform list.  To sum up, such an approach might be too inflexible.
(c) A combined approach  could use the positive elements in both previous solutions:
under this option, there would be an agreed threshold of development under which
countries are entitled to GSP benefits, but it would be supplemented by a rule based
on the relative approach, i.e. they could not claim benefits from less-developed GSP
providers than themselves.  Such an approach would make it easier to agree on the
uniform threshold level as it could be substantially higher than under the absoluteapproach: due to the flexibility provided by the additional relative criteria, the
uniform threshold should not be set at the level of the GSP provider with the lowest
level of development.  Thus a much smaller list of present beneficiaries would be
affected by the change.  Of course even this method could not automatically solve all
the difficulties mentioned earlier, including the choice of indices, the effects ofexchange rate movements, but it would provide on the one hand a more predictable
and equitable outcome, and would allow more flexibility to deal with the borderline
cases.
23. The above ideas should not be considered as specific proposals but rather as a conceptual
contribution to solving the problems raised by the submission of the delegation of Paraguay.  Theremight be a list of further issues, which could merit examination, such as the automaticity of any of the
approaches mentioned above: would the GSP benefits  be linked just to economic indices or would
there be additional criteria (e.g. the official declaration by a country defining itself as "developing",
etc.)?  Another set of possible questions is related to the potentials of product or sector-specific
competitiveness criteria, etc.  The delegation of Hungary is ready to discuss with other Members theissues contained in this submission or other appr oaches aimed at clarifying the provisions of the
Enabling Clause.
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