Prospects for LDCs in Nairobi and beyond

11 November 2015

As we move to the WTO 10th Ministerial Conference in Nairobi, WTO members are discussing the contours of a possible outcome around export competition in agriculture, a small LDC package, probably focusing on duty-free quota-free market access, rules of origin, cotton, the services waiver and some horizontal disciplines on transparency covering the different rules area. What are LDCs prospects for Nairobi and beyond? 

 

Least Developed Countries (LDCs) are not homogeneous as a group but they all suffer from a common set of structural handicaps such as low income levels, high economic vulnerability and weak human assets, which affect their ability to achieve sustained economic growth. In the WTO, these structural constrains have largely informed the positions and priorities of the LDC group. Such concerns can be broadly divided into three overlapping categories.

First, LDCs are vulnerable to disruptive trade practices applied by their trading partners. This is particularly the case in agriculture where trade distorting support provided in the EU, US, Japan and now increasingly India and China have depressed prices, reduced incentives to invest in LDC agriculture and ultimately affected livelihood and food security prospects. When prices became more volatile during the 2006 – 2011 food crisis, LDCs have also been hit hard by isolating policies such as export restrictions implemented by large exporters thereby exacerbating price spikes with disastrous effects on food security. In a similar vein, LDCs have suffered from the effect of capacity enhancing fisheries subsidies that have contributed to depleting fish stocks on which many LDCs rely for livelihood, income and food security.

Second, LDCs exports are directly affected by market access and market entry restrictions. While LDCs often benefit from preferential market access, duty-free quota-free schemes (DFQF) in OECD countries, and increasingly in emerging economies, tend to exclude certain products of interest to them or condition such access to demanding rules of origin. Overtime, such preferences have eroded not least as a result of the proliferation of regional trade agreements. Beyond tariffs, preferences in the area of service, as envisaged under the services waiver, might offer new opportunities if such schemes effectively target sectors where LDCs have export potential. Finally, meeting rapidly evolving public and private standards, traceability requirements, and other sanitary and phytosanitary measures in export markets, remains a significant challenge for LDCs and often put small producers with limited access to capital, at a disadvantage. Finally, given their limited human assets and high economic vulnerability, LDCs have highlighted the need for Special and Differential Treatment (S&DT) through less stringent levels of commitments in WTO disciplines. For example, owing to their low technological base, limited absorptive capacity and embryonic innovation systems in the area of intellectual property (IP) rights, LDCs are unlikely to benefit from strict IP protection as envisaged under the TRIPS Agreement. Flexibilities provided for LDCs in the various negotiating areas or the long standing debate on “implementation issues” are also symptomatic of this concern.

Overall, the prospects for addressing these priorities at the 10th WTO Ministerial Conference remain limited. Export competition has been a long-standing priority of the group. In practice, however, export subsidies  which in the early 1990s represented nearly 10 billion Euros a year in the EU  have practically disappeared in recent years. This should arguably make it easier for WTO members to reach an agreement by locking in existing reforms. However, beyond eliminating the possibility to reactivate such instruments in the future, the immediate economic gains will be limited. Prospects for an LDC package around DFQF, cotton, rules of origin and the services waiver are not brighter and the extent to which significant progress on these issues can be achieved beyond what was already agreed in Bali, remain highly uncertain (for further analysis on this point, see the article by N. Imboden in this issue). Finally transparency in rules, while always welcome, will most likely result in additional burden for LDCs with little benefits for the group. Given these limited prospects, LDCs essentially have three combinable options.

1. Expand the set of deliverables in Nairobi

If the Nairobi LDC package is too narrow, it could be expanded by adding possible deliverables. These could include issues such as a commitment by large food exporting countries, not to impose export restrictions on products being exported to LDCs. The establishment of a working group to review all types of NTBs affecting developing countries exports and find possible solutions where those measures are difficult to comply with for LDCs. Or an agreement to establish a prohibition on fisheries subsidies granted to vessels engaged in Illegal Unreported and Unregulated fishing (IUU) or targeting unequivocally overfished stocks. The group could also seek to ensure that the flexibilities envisaged for LDCs under the core market access pillars of the Doha Development Agenda – agriculture, NAMA and services – would be locked in ahead of any future talks, not least because such flexibilities seem to attract broad consensus among the WTO membership. The extent to which the rest of the membership would be willing to take such decisions in Nairobi remains uncertain, but such issues should not be controversial in their own right and could result in important benefits for LDCs.

2. Establish a credible post-Nairobi work programme covering core LDC priorities

The major challenge in Nairobi will consist in finding a compromise between those WTO members who argue that the prospects for reaching an agreement under the DDA have been exhausted and that new approaches are needed, and those who argue that negotiations should continue under existing mandates and on the basis of existing draft texts. The core issues of agriculture, NAMA and services are unlikely to disappear from the agenda. However, as WTO members redefine or reaffirm the terms of engagement in the post-Nairobi context, the risk exists that LDCs specific concerns could be marginalised, as larger trading powers focus their attention on their own priority issues. Ensuring that LDC priorities which have not been resolved in Nairobi figure specifically and prominently in a credible post-Nairobi work programme seems therefore warranted.  

After Nairobi, LDCs might see increased pressure to address “new issues” such as e-commerce, digital trade, competition policy, or investment to list just a few. To the extent that the Group has been able to secure some satisfactory “down payment” addressing their core issues, LDCs might want to show openness in exploring some of these issues, knowing that disciplines in those areas will be increasingly crafted outside of the WTO where LDCs are not represented. E-commerce, for example might be an area where SMEs in LDCs could significantly benefit if their specific needs are addressed.

3. Look beyond the WTO

Finally, given the lack of progress under the Doha Round, LDCs might not want to put all their eggs in the WTO basket. Regional integration, particularly for African LDCs, presents significant opportunities to foster the development of regional value chains and structural economic transformation not least because LDCs' export structure tends to be more diversified at the regional level than when trading with traditional partners such as the EU or US or with emerging economies. LDCs should also pay particular attention to developments under the so-called mega-regionals as these are likely to shape future trade conditions. For example, while the prospects for rules of origin harmonisation remain slim at the WTO, negotiations between the EU and US under the Transatlantic Trade and Investment Partnership (TTIP) will force these countries to agree on a common set of rules. If such harmonised rules are extended to counties which have a free trade agreement or preferential access to the EU and US, this could significantly help reduce the spaghetti bowl of rules of origin and allow for broader cumulation. In a similar vein, the focus on regulatory cooperation under TTIP has raised concerns that such agreement might raise the bar too high for many LDCs resulting in further marginalisation of the group. In this respect, extending the benefit of mutual recognition or of provisions facilitating bilateral trade amongst the EU and US to third countries would enable exporting developing countries to access both the EU and US market if they comply with the requirement of either one.

Author: Christophe Bellmann, Senior Resident Research Associate at the ICTSD.

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