The LDC Services Waiver beyond Bali

15 November 2013

Two years after the waiver, allowing WTO  Members to grant trade preferences in favour of services and service suppliers from least-developed countries (LDCs), no request for such preferences has been put on the table and the waiver still needs to be operationalised. What is preventing countries from doing so? What will the next WTO  Ministerial Conference bring?

At the Eighth  WTO   Ministerial Conference  in  2011,  trade ministers  adopted a waiver, enabling Word Trade Organization (WTO ) members to provide preferential treatment to  services and  service suppliers  of  LDCs.  The  waiver,  which  will last initially  for  15  years  from  the date of  adoption, releases  WTO  members  from their legal obligation - under Article ii of the general Agreement on trade in services (GATS ) - to provide non-discriminatory treatment to all trading partners when granting trade preferences  to LDCs.  The decision provides a two-track approach.  On the one hand, market access preferences of the type referred to in GATS Article XVI would be automatically covered by the waiver. On the other hand, non-market access measures are not automatic, but can be authorised by the WTO Council for Trade in Services (CTS). These can include, for example, regulatory preferences, preferential national treatment, exemptions for quotas or taxes, etc. All preferences granted will apply immediately and unconditionally to all services and services providers from LDCs and will be annexed to the waiver.

Since the waiver itself does not confer any direct economic benefit, it must be applied in ways that help create the conditions under which firms in LDCs can export services to a preference-granting country (but could not do so in the absence of preferences). This will require efforts from both LDCs themselves and their trading partners to identify commercially  meaningful  ways  to operationalise  the waiver  to facilitate  exports  of services from the countries most in need.

The waiver - a tool for development

The services sector has become a key driver of growth and development, accounting for 47 percent of all LDCs' overall GDP in 2011. Leveraging the services sector not only assists in unlocking further growth potential, but also can help address poverty and enhance the quality of life through greater access to available services. However compared with the value of world services trade, LDC services trade is still marginal. Hence, over the coming years, the waiver can provide significant opportunities to further enhance the growth of service sectors in LDCs.

What is needed?

In order to operationalize the waiver, all trading partners - developed, developing and least- developed countries - would need to identify areas where LDCs could benefit from commercially meaningful preferences.

To do so, WTO members may review existing most-favoured nation (MFN) exemptions, the limitations in their schedules of commitments and other regulatory barriers across the many services sectors and identify potential preferences that could also be granted to LDCs, in the same, similar or more specific ways. Furthermore, given the recent proliferation of preferential trade agreements, members could review existing commitments within these agreements and explore the extent to which such commitments could be extended in an economically meaningful way to services and service suppliers of LDCs (for example, measures contained in the CARIFORUM-EU EPA etc.).

What has been placed on the table so far?

So far, no WTO member has either made requests for preferences or come forward with pledges. The difficulty lies in the detailed information needed  to make the underlying assessments.  Reliable economic data on LDCs services trade is scarce and designing trade preferences in services pose a number of conceptual challenges.

Efforts are currently underway to collect information about LDCs services exports, target markets  and existing  barriers  as a first  step in designing  a possible LDC joint  request for meaningful preferences. In the meantime, nothing should prevent LDCs and their trading partners to come forward with ideas and suggestions of their own on how to operationalize the waiver.

As the next WTO ministerial is just around the corner (scheduled for 3-6 December 2013 in Bali), WTO  members are finalising a Ministerial Decision that acknowledges, inter alia, the importance that services trade can play in achieving LDCs' development objectives.

According to the terms of the draft decision (JOB/TNC/25), the WTO's Council for trade in services (CTS) will be instructed to launch a process aimed at promoting ‘‘the expeditious and effective operationalisation'' of the waiver, including a periodic review.  A high-level meeting of the CTS would take place six months after LDCs submit a collective request to identify sectors and modes of supply of particular interest. Developed and developing countries ‘‘in a position to do so'' would then be expected to indicate where they could provide preferential treatment to LDC services and services providers.

In the  draft decision, LDCs  are  also  encouraging  members  to  extend to  them any relevant commitments that they have already made in their respective preferential trade agreements and to eliminate market access limitations.

LDCs have also underlined the need for increased technical assistance and  capacity building, such as through the Aid-for-trade initiative, to overcome supply side constraints in this area.

Based on this draft text, the Bali Ministerial itself will be a prime opportunity where trade ministers from all WTO member countries can support the LDCs in their current efforts and expedite the process to identify meaningful preferences for LDCs.

Beyond Bali

The process of identifying preferences in services for LDCs has started, and efforts are underway to define the interests of the LDCs - sector by sector, export market by export market. Given this process, it is hopefully only a matter of time until the first pledges and requests will be available.  The waiver is a tool that gives countries the opportunity to foster services trade in LDCs  through improved  market access. The waiver should work hand in hand with the identification of supply side-related obstacles in the LDCs, so that their development partners can help address these constraints via initiatives such as aid-for-trade and the Enhanced integrated Framework, which are both targeted at the development aspect of trade.

Authors: Sherry Stephenson is Senior Fellow at ICTSD. she is an expert in the area of international trade policy, particularly services trade, and has worked more than 30 years in this area. Anne-Katrin Pfister is a Programme Officer at ICTSD.

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