Moderately Developed Country Status

Elizabeth Anne Henderson November, 2023

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Disputes around multilateral trade agreements’ effects on members states’ sovereignty and ability to pass and uphold domestic laws pre-date the World Trade Organization (“WTO”). A famous case illustrating this tension is Mexico etc v. United States, in which Mexico, among other nations, brought a complaint against the United States before the Generalized Agreement on Tariffs and Trade (“GATT”) panel for the United States’ embargo against Mexico’s tuna exports.[1] The United States had created regulatory standards requiring the tuna fishing processes that were considered less environmentally harmful, and was rejecting exports of tuna fish that were not produced within these regulatory standards. As a response in 1991, Mexico requested that the GATT hold a panel and provide an interpretation of GATT treaty law to clarify whether the United States’ embargo was legal. The United States and Mexico settled the dispute outside of the panel, but the case remains well known because it illustrates becoming member states of the GATT, and later the WTO, entails submitting to a legal body that may challenge domestic laws and policies. The benefits of WTO membership have so far outweighed the challenges to sovereignty, but the WTO continues to face challenges to its legitimacy based on accusations that the legal framework of its dispute settlement system is too open to abuse. Today, many of those accusations center around the self-designation system and Special and Differentiated Treatment.

What is Special and Differentiated Treatment?

Special and Differentiated Treatment (“SDT”) formally began in 1979 with the Enabling Clause.[2] The Enabling Clause created the generalized system of preferences, special treatment for developing countries, and nonreciprocity.[3] These policies in aggregate are referred to SDT. The WTO elaborates that SDT provides developing countries with “longer time periods for implementing Agreements and commitments,” “measures to increase [their] trading opportunities,” “provision[s] requiring all WTO members to safeguard… [their] trade interests,” and “technical assistance.”[4] These often culminate in programs like the Aid-for-Trade Initiative or the Initiative for the Americas on Sanitary and Phytosanitary Measures, which are intended to help developing nations overcome economic, environmental, or historic structural challenges.[5] The underlying goal is to enable these nations to transform themselves into developed countries through the combination of their own diligence and international equitable practices.

Why has SDT become controversial?

While many scholars and world leaders agree with SDT as a measure to alleviate the lasting effects of colonization, war, and imperialism, there remains significant discontent with how developed and developing countries are categorized.[6] The WTO follows a self-designation system whereby each nation declares itself a developed or developing country and other nations have no meaningful avenue to challenge that designation.[7] The WTO website acknowledges that “More than two-thirds of WTO members have self-designated themselves as developing countries or are classified as least developed countries.”[8] Among the nations that self-designate as developing are Singapore, South Korea, the United Arab Emirates (“UAE”), and Saudi Arabia.[9] The United Nations ranks Singapore, South Korea, and the UAE as among the top 30 most developed countries in the world on the United Nations Human Development Index.[10] The UAE is ranked as more developed than France, Italy, Spain, and Portugal.[11] There is, as even the staunchest advocates of equity and SDT will admit, an inherent inconsistency is discussing a nation more developed than many Western European countries in the same manner as Zimbabwe, Guatemala, and the Philippines. In addition to having less developed economies and significantly lower standards of living, the latter three nations owe much of their struggles from the effects of colonization and the dependency consequences of imperialism.[12] Allowing the UAE, which was never a colony of another nation, to enforce the same SDT provisions intended to benefit nations like Zimbabwe, Guatemala, and the Philippines, not only unfairly benefits the UAE, it also enables the UAE to outcompete those three nations and end up taking opportunities meant for them away.[13]

This issue also results in challenges to sovereignty, as Developing Countries have standing to use the WTO’s Dispute Resolution system to bring complaints against other nations for not fully affording them SDT privileges. This means that the self-designation system allows countries to award themselves greater latitude to challenge and possibly eliminate domestic laws and policies of other nations through the Dispute Resolution system, even while the challenged countries view their standing to do so as illegitimate.

Could Least Developed Countries Point the Way Forward?

While numerous proposals to revamp the designation system have been put forward, none have yet been adopted. The only solutions implemented thus far were the requirements that developing countries take on increased responsibilities during the Uruguay Round in the 1990s and the creation of a category called Least Developed Countries (“LDCs”).[14] LDCs are 46 countries the UN identified as being the least developed based on criteria encompassing income, human development, and economic and environmental vulnerability. This is the only category with defined criteria and that is not self-designated.[15] The creation of this category helped alleviate the tensions around SDT, since it identified the nations with the greatest need for equitable trade considerations and awarded them the additional modalities unavailable to other nations.

These criteria can also serve as an excellent model for the creation of a Moderately Developed Nation category. LDCs are decided based on their Human Asset Index (“HAI”), Economic Vulnerability Index (“EVI”), and GNI per capita.[16] Both HAI and EVI have been adjusted over the years to take into account additional factors that could structurally affect a country. For example, in 1971, the HAI only consisted of one factor: the adult literacy rate.[17] By 2005, HAI was measured by four factors: the under-5 mortality rate, percentage of population undernourished, gross secondary school enrollment ration, and the adult literacy rate.[18] In 2020, the category includes the under-5 mortality rate, prevalence of stunting, maternal mortality ratio, gross secondary school enrollment ratio, adult literacy rate, and gender parity index of gross secondary school enrollment.[19] After calculating an indexed score, each country is given an overall HAI score. LDC categorization requires an HAI score below 60.[20]

When looking at the index scores for developing countries not classified as LDCs, there quickly becomes a clear contrast. The UN has publicly available data for 97 countries that are not classified as LDCs. 58 of those countries have HAI scores above 90. There is reason to doubt the validity of the data from some of those countries, such as the Democratic People’s Republic of Korea, Iran, and Venezuela. However, assuming that 50 of the countries with scores above 90 are providing legitimate information, this suggests that 90 would cut the category roughly in half. Creating a cutoff at 92 would separate out 45 countries. Such a cutoff would help distinguish nations like the UAE, with a 92.2 HAI, from the Philippines with an 84.3 HAI, Zimbabwe with a 70.4 HAI, and Guatemala, with a 69.3 HAI. The latter three nations are clearly in greater need of specialized programs to help increase access to education and improve healthcare infrastructures than nations like the UAE. By creating a Moderately Developed Country category, nations like the UAE could be prevented from outcompeting more structurally disadvantaged nations like Guatemala, but also continue to receive some preferential trade treatment for key vulnerable industries.

Moderately Developed Countries would be assessed for systemic weaknesses that prevent them from comfortably self-designating as Developed. These weaknesses would be assessed based on the HAI, EVI, and GNI, allowing MDCs to participate in programs and initiatives targeted specifically towards these assessed weaknesses.

How Would an MDC Status Be Created?

There are six agreements that constitute the WTO’s rules.[21] The creation of MDC Status would require amending these agreements, particularly those for Market Access Commitment and Dispute Resolution. Such amendments are made through a process of negotiation and, once agreement is reached, having members sign onto the new agreement. This is a viable solution because many Developed Countries such as the United States, Japan, and countries in the European Union, have proposed adopting the World Bank’s classification or membership status in the Organisation for Economic Cooperation and Development as new criteria for category designation.[22] By creating a new status that does not strip a member state of all of its SDT privileges, but that establishes a difference between the more and less vulnerable nations currently within the Developing Country category based on objective criteria, MDC status could be the middle-ground solution.

  1. WTO, Mexico etc versus US: ‘tuna-dolphin’, https://www.wto.org/english/tratop_e/envir_e/edis04_e.htm (last visited Nov. 11, 2023). ↑
  2. Keck & Low, Special and Differential Treatment in the WTO: Why, When, and How in Economic Development and Multilateral Trade Cooperation, 150 (2006) (eds. Hoekman & Evenett). ↑
  3. Id. ↑
  4. WTO, Special and Differentiated Treatment Provisions , https://www.wto.org/english/tratop_e/devel_e/dev_special_differential_provisions_e.htm (last visited Nov. 4, 2023). ↑
  5. WTO Committee on Trade and Development, Special and Differential Treatment Provisions in WTO Agreements and Decisions, 13, 27 (Mar. 13, 2023). ↑
  6. Deannie Yi Ping Yap, Developing Country Status in the WTO: Investigating Self-Designation and Perpetuation of the “Pretend” Culture, ahead-of-print J. of Int’l Trade L. & Pol. 2 (2023). ↑
  7. Yap, at 3. ↑
  8. WTO, WTO Reform – An Overview, (https://www.wto.org/english/thewto_e/minist_e/mc12_e/briefing_notes_e/bfwtoreform_e.htm (last visited Nov. 4, 2023). ↑
  9. WTO Trade Facilitation Agreement Database, List of Developing Countries, https://tfadatabase.org/en/developing-countries (las visited Nov. 4, 2023). ↑
  10. United Nations, Human Development Insights, https://hdr.undp.org/data-center/country-insights#/ranks (last visited Nov. 4, 2023). ↑
  11. Id. ↑
  12. See generally, Griffith, Empires in the Wilderness: Foreign Colonization and Development in Guatemala (1965); Munhuweyi Kenneth Takudzwa, The Politics of Exploitation and Oppression, British Colonization, and Chinese Involvement in Zimbabwe, 11 Int’l J. of Crim. and Sociology 64 (2022); Constantino & Constantino, A History of the Philippines (1974). ↑
  13. See generally, Encyclopedia Britannica, History of the United Arab Emirates, https://www.britannica.com/place/United-Arab-Emirates/History (last visited Nov. 4, 2023). ↑
  14. Keck & Low, supra note 2, at 151. ↑
  15. See United Nations Department of Economic and Social Affairs, Handbook on the Least Developed Country Category (2021) [hereinafter LDC Handbook]. ↑
  16. United Nations Department of Economic and Social Affairs, LDC Identification Criteria & Indicators, https://www.un.org/development/desa/dpad/least-developed-country-category/ldc-criteria.html (last visited Nov. 4, 2023). ↑
  17. LDC Handbook, supra note 15, at 9. ↑
  18. Id., at 9. ↑
  19. Id., at 8. ↑
  20. United Nations Department of Economic and Social Affairs, Inclusion in the LDC Category, https://www.un.org/development/desa/dpad/least-developed-country-category/ldc-inclusion.html (last visited Nov. 4, 2023). ↑
  21. WTO, The Agreements, http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm1_e.htm (last visited Nov. 16, 2023). ↑
  22. WITA, EU Concept Paper on WTO Reform, http://www.wita.org/atp-research/eu-concept-paper-on-wto-reform/ (last visited Nov. 16, 2023); USTR, Joint Statement on Trilateral Meeting of the Trade Ministers of the United States, Japan, and the European Union https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/september/joint-statement-trilateral (last visited Nov. 16, 2023). ↑