Addressing landlocked developing countries' challenges: The role of trade

24 September 2014

Ahead of the 10-year review of the Almaty Programme of Action (APOA), it can be highlighted that the WTO has managed to secure deliverables for Landlocked Developing Countries (LLDCs) in two main areas, namely trade facilitation and Aid for Trade. The new APOA must contain concrete measures in all areas of interest to LLDCs, and particularly in the field of international trade that will help these countries integrate into the multilateral trade system.

 

 

The main challenge for LLDCs to participate in international trade is  their very high trade costs. When trade costs are measured as costs to import and export, LLDCs as a group present an average total cost to export a container of US$2630 and to import a container of US$3252. These figures are higher than those for Least Developed Countries (LDCs) which have export and import costs per container of US$1860 and US$2294 respectively.  By isolating the effect of landlockedness on trade transaction costs it can be observed that both landlocked LDCs and landlocked non-LDCs face higher costs than coastal LDCs. The conclusion that can be drawn from this analysis is that landlockedness and not the development level is the major determinant of high trade costs. In this environment trade facilitation measures at the border have a high potential for cost reduction.

Similarly, time spent in transit can also act as a barrier to trade. Time delays and depreciation costs can reduce trade flows even more significantly than tariffs. Each day saved in shipping time is worth 0.8 percent ad valorem for manufactured goods. Time-sensitive products (perishable, just‑in‑time) are even more affected by delays at the border. When times to export and import are measured LLDCs also perform poorly with an average of 37 days to export and 42 days to import. 

 

TABLE 1 

 

The poor performance of LLDCs in these measurements shows the urgency and importance for LLDCs to implement the Trade Facilitation Agreement (TFA). Trade facilitation is important for LLDCs because it lowers trade transaction costs, improves efficiency and competitiveness, eases integration into global value chains, and reduces time as a trade barrier. Additionally, there is an increased awareness and more attention being paid to integrating into local, regional and global value chains, in both industrial and agricultural sectors. Multi-country production chains offer developing countries a way of breaking into world markets without having to produce sophisticated final products. This integration into regional and global value chains is now seen as a key component of trade-led economic growth. In this context, it has been recognised that for integration into global value chains, efficient importation is as important as exportation. Inefficient customs practices and complex procedures significantly reduce the ability to successfully integrate into global value chains.

 

Trade facilitation agreement and the LLDCs

 

The Ministerial Decision of 7 December 2013 reached at the WTO Bali Ministerial Conference concluded the negotiations on the TFA. A Preparatory Committee was also established which has concluded its first task of performing a legal review of the agreement.  Unfortunately, further progress in the implementation of the TFA has stalled over some developing country concerns that other areas of the Doha Development Agenda would not be addressed and in particular, India's demands to secure a more permanent exemption from challenges to public stockholding schemes for food security purposes.

As a result, the TFA missed its first implementation deadline on 31 July 2014, which called for the adoption of a protocol amending the Marrakesh Agreement that creates the WTO. This will likely delay the internal ratification process that members need to go through for the agreement to enter into force, which according to WTO rules will happen only once two thirds of the WTO members have ratified the new agreement. Nevertheless, even with this delay the TFA could still enter into force on the target date of 31 July 2015 which was set by the ministers in Bali.

The TFA contains several provisions which should be of benefit to LLDCs, with the main one being Article 11 on Freedom of Transit in whose negotiations LLDCs were heavily involved. Article 11 clarifies and strengthens the disciplines in Article V of the GATT including the non-discrimination principle for goods in transit. Under Article 11, any regulations and formalities covering goods in transit shall not be maintained if they constitute a disguised restriction on trade or are more cumbersome than necessary. Traffic in transit shall also not be conditioned on collection of fees, except when these fees are cost-based, transport and administrative expenses. Article 11 contains a prohibition of the imposition of voluntary restraints on traffic in transit. Goods cleared for transit should also not be subject to any further charges, delays, restrictions or the application of technical barriers to trade measures.  Guarantees for the transit of goods shall be limited to ensuring transit requirements are fulfilled and shall be discharged without delay once the goods have completed transit. Guarantees may also cover multiple transactions and allow for their renewal. There is also a transparency obligation on customs authorities to publish all information used to set guarantees. Finally, the article prescribes that convoys or escorts can only be required in high-risk cases. Article 11 also contains a series of best endeavours provisions which, while not binding if implemented, should further benefit transit of goods. These provisions cover the use of separate facilities for goods in transit, cooperation between customs authorities to enhance transit and appointment of a national transit coordinator.

The TFA also contains several other provisions that should be of benefit to LLDCs. One of them calls for the expedited release of goods transported by air cargo. Another mandates customs authorities to further facilitate trade – through less documentation and inspections, rapid release, and deferred payments – to selected authorised operators. The TFA also encourages the use of single window operations, i.e. the submission of documentation for import and export to a single electronic point. Another measure that should be of benefit to LLDCs, whose trade is mostly conducted by overland freight, is increased border agency cooperation. This should ensure cooperation and coordination between authorities and agencies responsible for border controls on issues such as alignment of working days, hours, procedures and formalities; joint controls and sharing of common facilities; and establishment of one-stop border post controls.

Keeping in mind the lack of capacity and the implementation costs, the TFA also contains very innovative special and differential treatment provisions for developing countries. These provisions are based on the principle that the extent and the timing of implementation will be related to the capacity of each WTO member and implementation will not be required until sufficient capacity has been acquired. The TFA thus allows developing countries to schedule commitments into three categories according to what they consider is their capacity to implement them. Category A is for those measures to be implemented upon entry into force of the agreement for developing countries, or within one year after entry into force for the LDCs. Category B is those provisions which will be implemented after a transitional period of time of the determined by each country, and Category C is for those provisions requiring the acquisition of implementation capacity through technical assistance and capacity building. There are also other flexibilities for developing countries such as the possibility of switching measures from category B to category C, an early warning mechanism in case transition periods may be missed and a grace period for challenges under the WTO’s dispute settlement mechanism.

 

Thus, the TFA is the first trade agreement to rely in part on development assistance for its implementation. In order to ensure that this assistance is provided to all those that require it the WTO has launched the Trade Facilitation Agreement Facility (TFAF). The primary objective of this facility is to support LDCs and developing countries to assess their specific needs and identify possible development partners to help them meet those needs. Furthermore, to make the agreement work, additional actions in terms of transport corridor upgrading and improvement of other economic infrastructure should be programmed, as this has proven to be of great value for LLDCs. 

 

Other benefits of the Bali package for LLDCs

Although the TFA is a very important outcome from Bali for the LLDCs, this is not the only one. In Bali, Members took a decision on the implementation of the services waiver for LDCs which should help those LLDCs that are also LDCs to diversify their economies into areas that are not affected by being landlocked.  In July 2014, the LDC Group at the WTO, submitted a collective request regarding the preferential treatment they would like to see for their services and service suppliers.

Electronic commerce, another type of trade that is less affected by landlockedness, was also the object of a decision in Bali.  This decision calls for the substantial invigoration of the Work Programme on Electronic Commerce of WTO, especially under the initiatives taken in relation to commercial issues, development and evolving technology.

Aid for Trade, especially for trade facilitation, is another element that LLDCs have identified as being of particular importance in the WTO's sphere of work. This is because LLDCs receive comparatively less foreign direct investment than coastal states; and they have a limited diversification, both of their product base and export markets, which needs to be expanded to take advantage of market access opportunities. At the WTO Bali Ministerial Conference, ministers agreed on the continuing need for Aid for Trade of developing countries, and in particular of LDCs.The Ministerial Declaration reaffirms the commitment to Aid for Trade and reiterates the mandate given to the Director-General to pursue actions in support of Aid for Trade. It also frames the new Aid for Trade Work Programme within the post-2015 development agenda.

The WTO’s efforts on Aid for Trade shall be conducted through a new Work Programme for 2014‑2015. The organising theme of the new Work Programme is "Reducing trade costs for inclusive, sustainable growth". Putting trade costs at the heart of the new Work Programme speaks to the implementation of the Bali Package, especially in the context of the TFA, and the ongoing work on connecting developing countries, and in particular LLDCs, to value chains. 

 

The way forward

 

 

The APOA has contributed in highlighting the challenges faced by LLDCs in their development efforts. Work in this direction should continue in any new programme of action for the LLDCs. Additionally, the new programme should call for concrete deliverables in all areas of interest to the LLDCs, and particularly measures in the field of international trade that would help LLDCs integrate into the multilateral trade system.

 

In the area of trade facilitation, LLDCs should call for an early ratification of the TFA, so that it can enter into force in 2015 as planned. LLDCs should also call upon developing countries, particularly transit countries, to make commitments on as many provisions as possible under Category A, especially those in Article 11 on freedom of transit. LLDCs should also urge donors to make available the necessary funding for technical assistance and capacity building for the implementation of Category C provisions, in both LLDCs and transit countries.

 

Regarding Aid for Trade, LLDCs should continue to push for increased commitments to be made by donors. Synergies can be achieved between TFA implementation and Aid for Trade. LLDCs should call for the execution of integrated hardware and software solutions. The software is mostly rapid implementation of trade facilitation measures and the hardware should take the form of infrastructure projects such as transit corridors, road improvements, and border crossing upgrades.

 

In the area of services, LLDCs must remain active participants in the negotiations, just as they were in the trade facilitation negotiations. They should push for further liberalisation of trade in services at the multilateral level. LLDCs should also call for the operationalisation of the services waiver for LDCs and explore the adoption of similar measures for all LLDCs. Work in this area should be complemented with further analysis of the benefits of e-commerce for LLDCs.

LLDCs should also urge the WTO to launch a dedicated Work Programme for the LLDCs, similar to those already in place for the small economies and the LDCs. The objective of this work would be to arrive at concrete responses to help LLDCs integrate into the multilateral trading system and overcome the trade-related challenges derived from their geographical situation.   

Lastly, links should be made between the programme of action for LLDCs and the post-2015 development agenda.  The initiatives that have been deployed to achieve the MDGs and the APOA have provided valuable lessons that must be carried forward, as attention turns to work on the post-2015 development agenda and the new programme of action for LLDCs. LLDCs should participate actively as a group in the negotiations taking place at the UN. They should make it clear that the role of trade in the post-2015 agenda process should not be reduced simply to trade liberalisation. Rather, trade should be recognised as a development policy instrument. It is important for the multilateral trading system to be referenced in the emerging framework of the post-2015 development agenda and for clear goals and targets to be set that will measure the increased participation of LLDCs in international trade.

 

 

Author: Raúl A. Torres Counsellor in the Development Division of the WTO

 

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