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TWN Info Service on WTO and Trade Issues (May11/02)
13 May 2011
Third World Network

Dear friends and colleagues,

At the Fourth United Nations Conference on the Least Developed Countries (LDC-IV) being held in Istanbul, Turkey on 9-13 May a high-level thamatic debate on trade took place on 10 May that criticised excessive trade liberalisation as being damaging to the economies of LDCs. below is a report of the discussion that was kicked off by the following keynote speakers: Zambian President Rupiah Bwezani Banda and Thongloun Sisoulith (Deputy Prime Minister and Minister for Foreign Affairs of the Lao People's Democratic Republic). Panellists included the WTO Director-General Pascal Lamy, Martin Khor (Executive Director, South Centre), Martin Tofinga (President and Executive Director, Kiribati Chamber of Commerce and Industry) and Camille Chalmers (Leader, Haitian Platform for an Alternative Development).

We are also please to share with you two TWN Briefing Papers prepared for the LDC-IV Conference available at

http://twnside.org.sg/LDC-IV.briefings.htm

1. Brief analysis of the likely impact of the WTO’s Doha Round on LDCs; and

2. Outline of ways in which LDCs can be affected by EPAs (Economic Partnership Agreements).

Thank you.

With best wishes,
Third World Network

Trade liberalisation criticised in LDC Conference panel
Published in SUNS #7149 dated 13 May 2011

Istanbul, 12 May (Sanya Smith) -- Excessive trade liberalisation was criticised as being damaging to the economies of the Least Developed Countries (LDCs) by participants at an official high-level thematic debate on trade at the United Nations LDC-IV Conference in Istanbul, Turkey.

President Rupiah Bwezani Banda of the Republic of Zambia, who gave a keynote speech, also criticised the lack of a positive response from the European Union to African demands in the Economic Partnership Agreement negotiations.

He and other panellists called for an early harvest for LDC issues in the stalled talks on the Doha Agenda at the World Trade Organisation (WTO).

WTO Director-General Mr. Pascal Lamy called for political will, but surprisingly stopped short of asking delegates to take measures to conclude the Doha Round.

The Fourth United Nations Conference on the Least Developed Countries (LDC-IV) is being held in Istanbul, Turkey on 9-13 May.

Occurring once every ten years, it aims to assess the implementation of the Brussels Programme of Action for the LDCs for 2001-2010 and mobilise additional international support and action in favour of LDCs. Governments in Istanbul are negotiating a new Programme of Action for the LDCs and there are also high-level debates, as well as international organisation, parliamentary, civil society and private sector tracks.

While negotiations on the new Programme of Action continued, a high-level interactive thematic debate on harnessing trade for the LDCs' development and transformation was held on 10 May.

It was co-chaired by the Prime Minister of Lesotho, Pakalitha Mosisili, and Peter Lilley, a Conservative British Member of Parliament who was Secretary of State for Trade and Industry under Prime Minister Margaret Thatcher and is currently co-chair of "Trade Out of Poverty" (a campaign set up by an all-party group of UK parliamentarians).

The keynote speakers were the Zambian President and Thongloun Sisoulith (Deputy Prime Minister and Minister for Foreign Affairs of the Lao People's Democratic Republic). Panellists included the WTO's Pascal Lamy, Martin Khor (Executive Director, South Centre), Martin Tofinga (President and Executive Director, Kiribati Chamber of Commerce and Industry) and Camille Chalmers (Leader, Haitian Platform for an Alternative Development).

Lesotho's Prime Minister Mosisili began by emphasising that LDCs are the most vulnerable economies in the multilateral trading system and that given the many challenges they face, they lack a competitive edge in world markets. He highlighted the need to harness trade for their development and that to do this, efforts should be made to harness its potential for LDCs. He pointed out that most LDCs export raw materials and that they remain marginalised in global trade due to supply-side constraints.

His priorities for the discussion included addressing supply-side constraints so that LDCs can diversify and shift to higher value added production.

He invited LDCs and multilateral institutions such as the WTO to consider the following questions: what LDC-related concerns have been addressed/are being addressed at the multilateral level; what initiatives are in place to address LDC supply-side constraints at the multilateral level; and the role that mechanisms such as unilateral preferences, regional trade agreements and South-South cooperation can play in expanding LDC trade and strengthening their capacity to trade.

Peter Lilley stated that it was hugely important that we remove what barriers we can that still impede LDCs from participating in world trade. He noted that high tariffs remain on the products that LDCs are best equipped to produce. He gave the example of the United States imposing higher tariffs on imports from Cambodia and Bangladesh than those from the UK and France. Lilley pointed out that the US gets six times as much money from tariffs on imports from Cambodia and Bangladesh as it gives to those countries in aid. So, he said, there was a need to get rid of those tariffs and sign up to the Doha commitment to do so as soon as possible.

Lilley went on to comment on the way in which rules of origin can be a barrier to trade. He observed that the US has more generous rules of origin than the EU and that this had meant that the simpler rules of origin in the US unilateral preferences through its African Growth and Opportunity Act had boosted trade more than the EU's preference programme of Everything But Arms.

He explained that subsidies damage exports from LDCs such as cotton and other agricultural products and that they were unnecessary for developed countries. He highlighted the importance of giving countries the capacity to trade, such as infrastructure including roads, ports and railways and the ability to ensure quality etc.

However, he noted that the proportion of aid devoted to boosting economic capacity and infrastructure in developing countries has fallen by two-thirds.

In his keynote address, Zambian President Banda noted that many LDCs still face challenges that hinder the use of preferential market access. He stated that major gaps still remain with respect to adequacy, appropriateness and timeliness of this preferential market access and that notable challenges with this preferential market access have been stringent rules of origin and burdensome standards requirements.

The President highlighted the supply-side constraints that LDCs continue to face that impede their efforts to integrate into global trade and concluded that, "It is therefore imperative that these challenges are addressed in a coherent and practical manner to enhance the role of trade in development and poverty reduction."

He said that development partners needed to go beyond preferential market access and invest in making LDCs equally competitive.

He said that countries like Zambia look forward to an early harvest in the Doha Development Agenda negotiations and that the international community should ensure that the Agenda delivers a package on issues of concern to LDCs which are fully incorporated in the outcomes.

On the Economic Partnership Agreement (EPA) negotiations with the EU, he noted that they had reached a critical stage, yet the concerns of the African, Caribbean and Pacific (ACP) countries have not been fully addressed.

He noted ways (including aid for trade) in which LDCs' supply-side constraints could be addressed so they are not condemned to being perpetual suppliers of raw materials.

The President also said that issues of technology transfer should be fully incorporated to help LDCs respond to the challenges of climate change, and finished by saying that he expected "that we shall leave Istanbul with a program that fully addresses the issues that have and continue to impede the structural transformation of LDCs."

In the second keynote speech, the Lao Deputy Prime Minister Sisoulith pointed out that, "There is still a lot for us to do to ensure that trade can really help LDCs."

He added that the position of LDCs in the world trade system remains relatively the same as ten years ago, and the problems such as supply-side constraints, duty-free, quota-free (market access) and other trade-related issues "are the ones that we had tried to address a decade ago."

He was clear that "we need to ensure that what we do and decide today can really make a difference when we meet again in ten years from now and not to repeat the same problem over again and again."

After outlining the supply-side, infrastructure and market access problems that Lao PDR faces, he concluded that what was needed to help LDCs benefit from trade included seriously addressing the supply-side constraints and productive capacity of LDCs.

Martin Khor, Executive Director of the South Centre, noted that many LDCs have higher export to gross national product ratio than some developed countries. He said that, "It is the way in which the LDCs are integrated in trade that has been a disadvantage. LDCs are too dependent on raw materials export, and prices of commodities have had a long-term trend decline, thus causing major revenue and income losses for LDCs."

He pointed out the role of speculation in the great volatility in commodity prices, since between 2003 and 2010, the investments in commodity index trading rose from $13 billion to $320 billion. Khor then highlighted the serious effects on LDC economies of the volatility of commodity prices and concluded that their fate should not be dependent on speculation.

He proposed that, "Commodity markets should therefore be regulated to reduce speculative forces. The old objective of stabilizing commodity prices and ensuring decent levels should be pursued again. And ideally, there should be agreements among suppliers and consumer countries. Otherwise, suppliers of commodities should share their experiences and attempt to align supply with demand."

Like the other speakers, Khor said that LDCs face the basic problem of supply capacity which hinders them from taking advantage of any market opening and that their exports outside of commodities therefore remain small.

He emphasised that it is thus vital that LDCs be assisted to increase their capacity to produce in agriculture, industry and services. They must be allowed and assisted to grow their own food and expand manufacturing, including through processing and manufacturing based on natural resources.

On trade issues, Khor stated that imports are an important aspect of trade and that the liberalisation of imports before the country is ready can damage local producers.

"This is the lesson from the many years of structural adjustment programs that LDCs went through, when many LDCs were asked to lower their applied tariffs far below their WTO bound rates. Many farmers and producers saw their livelihoods damaged. Old structural adjustment programs have to be adjusted, including by LDCs," he stressed.

With respect to the Doha Round negotiations at the WTO, Khor said that, "In the WTO, it is recognized that LDCs have weak economies and thus need not reduce their bound tariffs in the Doha negotiations. However, if LDCs are part of customs unions (a type of regional trade arrangement) that also contain non-LDCs, then if the non-LDC developing countries have to cut their tariffs, the LDCs will also be affected."

He gave examples of Southern African LDCs affected by tariff reduction obligations of South Africa, and Kenya in the East African Community.

Khor continued, "Since it may take more time for the Doha negotiations to conclude despite the heroic efforts of our Director-General here (Pascal Lamy), the call by the LDC Group and the President of Zambia just now for an early harvest for LDCs or an early harvest for development generally should be supported, including at this conference. This is in line with the Doha mandate that developing countries' interests are at the centre of this Round."

"Among the early harvest elements can be: duty-free quota-free market access for all products for LDCs; major reduction of cotton subsidies; simplification of rules of origin and phasing out of non-tariff barriers for developing countries' products; progress in services Mode 4 for LDCs; implementing TRIPS and public health amendment of TRIPS, and amendment of TRIPS to prevent bio-piracy; reform of Article 24 of GATT to incorporate strong special and differential treatment for developing countries in the rules regarding bilateral trade agreements; and Aid For Trade resources focused on boosting supply capacity of LDCs. This list is very familiar to you. What is required is the political will for an early harvest in case the Round does not conclude soon," Khor said.

He then turned to the free trade agreements (FTAs) that LDCs are negotiating, such as the EPAs between Africa and Pacific countries with the EU. He said that, "LDCs are used to FTAs that are non-reciprocal, such as the Everything But Arms initiative of the EU. In the EPAs, there is little special and differential treatment and the agreements proposed are largely reciprocal."

Referring to the Zambian President's earlier statement that the requirements of developing countries have not yet been met, Khor said, "The LDCs face a dilemma. They do not want a reciprocal deal in which they have to open their economies to EU, but they also want to retain the integrity and operability of their regional trade agreements with their neighbours, such as EAC, COMESA, ECOWAS, SADC, etc. However, the European Commission demand in the EPA is zero tariffs for 80% of products. The proposals also include prohibition of export restrictions including export taxes, which poses difficulties for LDCs that want to process and manufacture their natural resources to climb up the value chain. They include TRIPS-plus elements, and WTO-plus obligations on investment and government procurement. All these would severely limit policy space of the LDCs."

Khor concluded by proposing that, "The LDCs should not be placed in such a terrible dilemma. They should be allowed to continue to enjoy non-reciprocal trade preferences such as Everything But Arms. At the same time, they should also be allowed to maintain or enter into regional trade agreements with their neighbours that include non-LDC developing countries. One solution is for the EU and other developed countries to offer similar non-reciprocal arrangements with non-LDC African and Pacific countries. The US has given the African Growth and Opportunity Act to Africa, a similar gesture could be given by the EU re: EPAs."

The WTO's Pascal Lamy summarised the afternoon's presentations as showing that to make trade work for LDC development, what is needed is proper market access and proper domestic capacity to trade.

He explained the state-of-play in three areas of market access: duty-free quota-free, where he noted that this has not yet been granted multilaterally to LDCs without conditions; rules of origin (which he noted was in many respects as important as tariffs) which had also not yet been transferred into multilateral, predictable, stable disciplines that LDCs would benefit from; and agricultural subsidy elimination or reduction where they distort the agricultural trade of LDCs - here, he noted that elimination of export subsidies is already on the table but that the US, EU and Japanese agricultural subsidy cuts which are on the table are linked to the overall completion of the Doha Round.

On capacity-building, Lamy claimed there had been a lot of progress in aid-for-trade funding. He concluded that what is needed now is political energy and determination at the international and domestic level.

He noted that if an operational conclusion was to come from the day's discussion, it would be to use the Istanbul conference to send a clear signal about what should be done in the future, as it did move a number of things forward ten years ago.

However, some participants were surprised that he gave a rather low-key performance and did not mention (as he had been expected to do) that there should be political will to conclude the Doha Round.

Martin Tofinga of the Kiribati Chamber of Commerce and Industry highlighted the importance of seasonal employment programs for people from Kiribati in New Zealand and said that the US and the EU should facilitate labour mobility.

He called for an import substitution strategy to be pursued after rigorous analysis of its foreign exchange implications. Due to the importance of domestic investors, he said the policy environment to encourage them should be strengthened. Mr Tofinga also made an impassioned plea for action on climate change, saying that "the tides are eating away our shores", their drinking water is getting saltier and "we really do not wish to sink".

Camille Chalmers of the Haitian Platform for an Alternative Development made a fundamental criticism of the damage caused to Haiti by the liberalisation policies imposed through structural adjustment programmes. He explained that Haiti had produced 98% of its grains but was now a net food importing country which imports more than 83% of its annual rice from the US.

According to Chalmers, many Haitian farmers could no longer make a living from farming due to the totally irrational decision to reduce tariffs which had made Haiti the most open economy in the continent.

He said this obviously had multiple consequences including great vulnerability in terms of food security, as could be seen dramatically in the riots of 2008, and the increased poverty and unemployment in the countryside led to a greater exodus to cities which reinforced the situation there.

He noted that the continued trend of liberalisation was making it impossible to undertake industrialisation and added that it was now necessary to break with the dogmas of the Washington Consensus and recognise the damage done to our countries.

Chalmers emphasised the need for space for independent and sovereign policies, even if that means selective protection to support production. He also pointed out that it was an absolute priority to strengthen the productive capacity of LDCs.

Chalmers concluded that there was a need to think about the WTO and FTAs because they continue to be dominated by liberalisation, sometimes by ultra-liberalisation.

In the discussion, the US recognised the supply-side constraint difficulties faced by LDCs and encouraged all to look at capacity-building.

Ambassador Ali Mchumo, Chief Executive and Managing Director of the Common Fund for Commodities, said that in the absence of a Doha Round conclusion, there should be an early harvest for LDCs.

Oxfam New Zealand's Executive Director Barry Coates then highlighted the difficulties faced by LDCs when acceding to the WTO. He stated that even industrialised countries do not have to do what LDCs are being asked to do in WTO accession. He said that the WTO purports to be based on rules, but in its accession negotiations, those rules tend to be different for those acceding.

He noted that early liberalisation is not good for development and LDCs were asked to agree to WTO-Plus obligations including prohibiting export subsidies and making commitments in service sectors. It is well time to review the WTO General Council decision of 2002 re: LDC accession and to insist on measures that would actually provide some right for LDCs to appeal to an objective body if the treatment they are receiving is not commensurate with their LDC status.

Brazil emphasised the importance of LDCs in standard setting and that the usual holding of Codex Alimentarius (food and veterinary standards setting forum of the FAO and WHO) meetings in developed countries makes it impossible for developing and above all LDCs to participate in a sustained manner in these organisations.

The result of this is that standards are set mostly for the needs and perspective of developed countries (and some developing countries). One alternative proposed by the Brazilian delegate would be to concentrate Codex meetings where the respective organisations are based.

The Brazilian delegate concluded by saying that if the Doha Round cannot be concluded soon, it is not because anyone is intent on improving market access for the LDCs, but rather because some developed countries are intent on obtaining more market access for themselves.

A representative of the Third World Network (TWN) noted that there had not been sufficient progress in the Doha talks in areas of interest to LDCs such as the elimination of trade-distorting cotton subsidies, an effective safeguard mechanism against import surges, a ceiling on the agricultural green box subsidies, full labour mobility for workers from LDCs as the panellist from Kiribati highlighted and changes to rules to ensure that LDCs do not have to liberalise as much in any FTA.

She gave three examples of the way in which trade rules can impact on the ability to do value added processing and move up the value chain.

Firstly, all industrialised countries except Hong Kong had industrialised via infant industry protection; if LDCs have to remove or lower their tariffs at the WTO (for example, because they are in a customs union with non-LDCs who have to cut their tariffs) or in FTAs/EPAs with developed countries, this would make it much harder to industrialise and diversify away from exporting commodities.

Secondly, the TWN representative pointed out that another way to achieve value added processing was to use export taxes on raw materials to make the domestically produced value added materials more competitive.

She gave the example of Indonesia which only had 4% of the world market share of plywood in 1980, but after imposing export taxes and bans on raw logs, in less than ten years, Indonesia had achieved 80% of the world market share of plywood. Similarly, some experts noted that export taxes were the most important tool in Britain's industrial development. Despite this, the EU seeks to limit or ban the use of export taxes and other export restrictions in its EPAs and FTAs (including with LDCs) and open government procurement including in LDCs at the WTO and its FTAs and EPAs.

Another example of a way to ensure that LDCs obtain more of the value chain is via maritime cargo sharing arrangements where exports from LDCs are carried on LDC ships rather than those from a third country. This is another practice which the EU seeks to prohibit in its EPAs and FTAs, said the TWN representative.

Martin Khor of the South Centre, in responding to the interventions from the floor, said that Haiti's import liberalisation had been the wrong kind at the wrong speed, similar to that in other LDCs, and mainly via the International Monetary Fund and World Bank programs in the 1980s-1990s that led to damage to local producers.

He noted that although the influence of these institutions may have diminished somewhat due to multilateral debt relief programs, the policies and their impact remains. He therefore concluded that a change in the Washington Consensus is needed.

Khor pointed out that former US President Bill Clinton had apologised to the people of Haiti for the wrong kind of policy, such as importing subsidised rice from the US, which caused Haiti to change from being self-sufficient in food to depending on imports of US food today.

Khor said, "We see that LDCs still have very low applied tariffs, far below the level allowed at the WTO and that this is a major constraint on the ability to develop productive capacity." He asked how a farmer can produce if she/he faces subsidised imports. He went on to explain the need to stabilise commodity prices at a decent level.

On the Doha Round, Khor said he supported what Brazil said and that the current impasse in the Doha negotiations is not because developing countries have not offered enough. He said they have made very major concessions that they have never made before in the history of the multilateral trading system.

According to Khor, the proposals on the table oblige some developing countries to cut their industrial tariffs by 50-70% which is really too much. But some developed countries are requiring tariffs to be further cut to 0% in three major sectors, which would mean that prospects for development will be severely compromised. He concluded by saying that he hoped developed countries would look at Doha from a development perspective, then this Round can have development principles intact, but not with the present proposals on the table.

As a conclusion, the Co-Chair of the panel discussion, Mr. Lilley, said that his Trade Out of Poverty group of parliamentarians has reached a consensus: it is up to LDCs themselves how far and how fast they should liberalise. He noted the strength of the infant industry argument and that developed countries themselves have often used it, so "it would be wrong for us to deprive developing countries of that opportunity if they choose."

Lilley pointed out that if the developed countries block exports from LDCs, that is hugely important to LDCs, but because of the small LDC market, if developed country exports are restricted in LDC markets, that is not terribly important to rich countries. Therefore, he concluded that rich countries can unconditionally open their markets to LDCs and should do so.

He said that whether on the left or right of the political spectrum, they could reach agreement on this. He noted that agreement had been reached on this in the UK and increasingly in the EU and he hoped it would be in other developed countries.

So, Lilley urged LDCs to knock on the doors of developed countries and ask them to remove their remaining barriers now. "Don't wait for a Doha agreement or reciprocity. Countries can make their moves unconditionally, unilaterally and immediately and you just need to demand that they do so." +

 


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