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TWN Info
Service on WTO and Trade Issues (Apr21/17) Geneva, 27 Apr (Kanaga Raja) – Landlocked Developing Countries (LLDCs) face specific challenges to economic development due to their remoteness, including amongst others lack of sea access, distance from international markets, and high transit costs, and the effect of these challenges has become more pronounced in the wake of the COVID-19 pandemic. This is one of the main conclusions highlighted in a new report by the WTO Secretariat that has been submitted to the United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. A total of 32 countries are categorized as LLDCs, and of these 32 countries, 26 are WTO members while six are observers. According to the report , the trade performance of the LLDCs has been uneven despite the implementation of the Vienna Programme of Action (VPoA) for LLDCs in 2014. With only three years left in the implementation period of the Vienna Programme of Action (VPoA) for LLDCs, the regression that the pandemic has brought is a major setback, said the report. The LLDCs continue to depend on exports of a few low value-added products, it added. While there has been a better performance when it comes to exports of services, LLDCs’ share in services exports remains very low, it said. The report said LLDCs face unprecedented challenges due to the pandemic, particularly trading costs, time delays and other impediments due to an increase in trade-restrictive measures within their own borders including logistics, self-imposed export prohibitions and restrictions, as well as other technical barriers to trade (TBT). They also face a variety of new protective measures imposed by their trading partners including heightened sanitary and phytosanitary (SPS) controls, quantitative restrictions and other related TBT. In the case of the LLDCs, these concerns are magnified because they rely on transit countries for both imports and exports, said the WTO. The pandemic presents a challenge unprecedented in the history of the multilateral trading system, with the LLDCs being no exception, it added. “The international community must rally to ensure that protectionism does not disrupt the potential for recovery from the COVID-19 pandemic. Countries must maintain open flows of trade and investment which, along with fiscal and monetary policy, can lead to a strong [and] inclusive economic recovery. This is the only way for LLDCs to return [them] to the path intended by the Vienna Programme of Action,” said the report. TRADE TRENDS IN THE LLDCs According to the report by the WTO Secretariat, the LLDCs were net exporters of merchandise between 2011 and 2014, exporting as much as $260 billion in 2014 and importing $257 billion in the same year. The year 2015 onward saw the trajectory change with the LLDCs becoming net importers of merchandise, it said. In 2019, LLDCs’ goods trade deficit was $41 billion, a 35% increase from 2018, it added. Merchandise trade has been very volatile in LLDCs over the past decade, with a series of negative swings between 2013 and 2016, said the WTO. It said that between 2014 and 2015, LLDC exports declined by as much as 31% year-on-year, and export growth slowed between 2018 and 2019 by -2%, which will likely make economic recovery for LLDCs in the wake of the pandemic even steeper. The trend line for LLDCs’ imports is similar to the export trend: between 2014 and 2016, imports fell by 16%. Equally, import growth slowed between 2018 and 2019 to 4% from a high of 13%. This negative merchandise import and export trends were worsened by the COVID-19 pandemic, said the WTO. The WTO noted that as of April 2020, LLDC exports were 40% lower than in April 2019, which is almost twice the COVID-19 induced decline for world exports. As the world trade recovered towards the end of 2020, LLDC exports continue to decline by as much as 8% while global exports grew by 7%. LLDCs’ commercial services exports and imports have also experienced challenges over the past decade, said the report. In 2019, LLDCs’ commercial services trade deficit was $11 billion, a 43% reduction from 2018. Commercial services exports for LLDCs have grown steadily since 2011, with a 2019 export value of $48 billion; services export volatility for LLDCs has been less in comparison to services imports with double digit fluctuations in 2015 and 2019. A year after the launch of the VPoA in 2015, both commercial services imports and exports declined by 12% and 7% respectively, with further decline into 2016. Mirroring the trends in merchandise trade, services trade growth slowed between 2018 and 2019 when services imports for LLDCs declined by 13%. The COVID-19 pandemic poses unforeseen challenges to the multilateral trading system, said the WTO. “LLDCs are especially vulnerable to the pandemic’s negative effects as they possess relatively weak health and social safety nets, and struggle to mobilize needed resources to address the pandemic and fund a strong and inclusive economic recovery.” It is equally concerning that, given the high number of people employed in the informal sector of LLDC economies, COVID-19 containment measures will have a greater economic impact on the population, it added. The WTO observed that while the share of LLDC merchandise exports has increased by 6% between 2015 and 2019, its services exports has declined over the same period by almost 2%. Increasing LLDCs’ global share of exports provides increased revenue from trade as well as helps LLDCs fulfill SDG target 17.11, which calls for the increase of developing countries’ share of global exports, it said. “The increased revenue from exports growth would afford LLDC governments the fiscal space required to invest in boosting the competitiveness of their respective economies.” Unfortunately, said the WTO, the LLDCs also present a very low level of diversification of export products. Citing UNCTAD’s product concentration index, the WTO said that export products in LLDCs have become less concentrated amongst fewer products and the index value changes from 0.38 in 2011 to 0.27 in 2019. This is compared to values of 0.42 in 2011 to 0.21 in 2019 for LDCs, 0.13 in 2011 to 0.10 in 2019 for the developing countries excluding LDCs, and finally, 0.06 in 2011 to 0.07 in 2019 for developed economies. Both LDCs and developing countries have been able to diversify their exports while LLDCs still lag behind, said the WTO. It also found that between 2011 and 2019, tariffs faced by LLDCs’ exports in developed regions have increased by 0.2%. This is even more troubling when compared with tariffs faced by the larger developing regions that saw an increase of just 0.1% over the same period, it said. Even though the percentage of LLDC exports to the developed regions which faced tariffs increased in the past decade, the WTO found that the share of exports admitted duty-free to developed regions for LLDCs actually increased by 3.6% between 2010 and 2019. Again, it said, the reasoning being that an increased share of exports entering developed regions’ market duty-free is indicative of expanding economic opportunities for LLDCs. The WTO further observed that the share of merchandise exports over GDP for LLDCs have decreased by 11.5% between 2011 and 2019. “This is not encouraging as an increase in the share of exports of goods in domestic production is indicative of the significance of trade in the economy,” it said. “Fortunately, though, the share of services exports over GDP for LLDCs increased by 0.3% between 2011 and 2019 – even though minuscule, the increase is significant in mainstreaming trade into the economic development of LLDCs,” it added. IMPLEMENTATION OF VPoA According to the WTO Secretariat report, the Vienna Programme of Action (VPoA) correctly identifies the high transport and trade costs of LLDCs as a key barrier to the pursuit of LLDCs’ trade potential. It noted that the Trade Facilitation Agreement (TFA), which entered into force on 22 February 2017, contains provisions for expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. It further contains provisions for technical assistance and capacity building in this area. As of 23 March 2021, 153 out of 164 WTO Members have ratified the TFA, which represents 93.3% of the WTO Membership. Out of 26 LLDC Members, all have ratified the TFA. In addition, 29 out of 30 transit developing countries have ratified the TFA. According to the WTO, as of 30 March 2021, the TFA boasts a 70.1% rate of implementation of commitments by all WTO Members. Amongst all Members, 7.9% of total commitments have been flagged for future implementation (category B future implementation). It said that Members have also signalled that 19.3% of commitments shall be implemented with additional time and upon receipt of capacity-building support (category C future implementation with capacity-building). The figures thus leave only 2.7% of commitments that are yet to be designated, meaning that they have not been notified under any category, said the WTO. The rate of implementation by developing and LDC Members is 61.0%, and amongst these Members, 10.3% of total commitments have been flagged for future implementation (category B future implementation). Members have also signalled that 25.1% of commitments shall be implemented with additional time and upon receipt of capacity-building support (category C future implementation with capacity-building). The figures thus leave only 3.6% of commitments that are yet to be designated, meaning that they have not been notified under any category, said the WTO. When it comes to implementation by LLDCs, it is estimated that LLDCs have already implemented 50.7% of all notifiable commitments, up from 34.7% in 2020, it added. The WTO said that 14.7% of those commitments have been designated to be implemented with additional time (category B future implementation), and an additional 34.7% of the commitments have been flagged by LLDCs as needing technical assistance support for implementation (category C future implementation with capacity-building). In the case of the transit developing countries, the WTO said an analysis of these notifications shows that transit developing countries have implemented 60.5% of the obligations in the TFA, up from 51.0% in 2020. It added that 14.0% will be implemented at a later date and technical assistance has been requested in order to implement an additional 25.5% of obligations. Noting that the WTO-led Aid-for-Trade initiative is enshrined as a priority in the VPoA, the WTO said in relation to aid-for-trade flows to LLDCs, since 2006, the LLDCs have received close to USD 85 billion in aid-for-trade disbursements. In 2019, LLDCs received disbursements of USD 7.7 billion, slightly less than in 2018 (USD 8.0 billion). Nearly a third of aid-for-trade flows for LLDCs in 2019 went to energy infrastructure (30.8%), 27.6% went to agriculture, 20.1% to transport and storage infrastructure, and 21.5% to the remaining categories. In terms of support to trade policy, trade facilitation was the most important sub-category, accounting for 1.08% of overall aid-for-trade flows to LLDCs. “As the ongoing COVID-19 pandemic threatens to erode some of the progress made in trade development and liberalization across the international community, the effects on LLDCs and Landlocked Least Developed Countries remains particularly acute,” said the WTO. Since the onset of the pandemic, each WTO member has coped with increased trading costs, time delays and other impediments on a dual front: (1) Measures within their own borders including logistics, self-imposed Export Prohibitions & Restrictions, and other Technical Barriers to Trade (TBT); and (2) New Protective Measures as imposed by Trading partners including heightened Sanitary and Phytosanitary (SPS) controls, Quantitative Restrictions and other related TBT. However, in the case of the LLDCs, this category of members face a third obstacle as they must also navigate new COVID-19 related protective measures and restrictions being implemented by the Transit Countries on which they rely, said the WTO. The WTO found that from a total of 336 official COVID-19 related notifications received from WTO members as of mid-March 2021, 22 were issued by LLDCs and 105 from transit countries. TBT and SPS measures made up the bulk of these notifications, along with quantitative restrictions aimed at ensuring domestic food and medical supplies, it said. In addition to official notifications, the WTO trade monitoring exercise has identified several COVID-19 trade and trade-related measures including 310 goods-related measures, 102 services-related measures and 62 measures impacting TRIPS, said the WTO Secretariat report.
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