Info Service on WTO and Trade Issues (July12/01)
23 June 2012
Third World Network
for LDC accession may not really benefit LDCs
Published in SUNS #7416 dated 23 July 2012
Geneva, 20 Jul (Sanya Reid Smith*) -- If the General Council of the
World Trade Organisation (WTO), at its meeting on 25-26 July, adopts
the new Guidelines for the terms of accession of the least developed
countries (LDCs), far from facilitating the accession of the world's
poorest countries as intended, it may make the terms more onerous
than that of original LDC members, or even some advanced developed
The General Council is to consider a draft decision proposed by the
WTO sub-committee on LDCs acting in pursuance of a mandate of the
Eighth Ministerial Conference (MC8) of the WTO in December 2011.
At the Conference, the Ministers had instructed the LDC sub-committee
to submit recommendations that would "further strengthen, streamline
and operationalize the 2002 guidelines by, inter alia, including benchmarks,
in particular in the area of goods, which take into account the level
of commitments undertaken by existing LDC Members."
A preliminary analysis undertaken at the Third World Network (TWN)
of the guidelines and their actual effects suggest that it may have
effects contrary to the claims after MC8 of at least one step in favour
of LDCs to offset the abject failure of the Ministerial Conference
to provide a positive LDC package.
At the conclusion of MC8, the mandate was viewed as important to demonstrate
that the multilateral trading system benefits its weakest members,
especially when the WTO is unable to conclude the Doha negotiations.
The TWN research suggests that the decision meant to benefit LDCs
that are trying to accede to the WTO through guidelines may turn out
to be of little, if any, benefit if the new Guidelines are adopted.
In terms of the new guidelines, the acceding LDCs would have to bind
all their agricultural tariffs as well as 95% of their industrial
tariffs (known in WTO language as NAMA). This is in contrast to the
binding coverage of many developing countries, including LDCs, or
even a developed country, which currently enjoy more NAMA tariffs
being left unbound.
Even for the allowed 5% of unbound NAMA tariffs under the proposed
new guidelines, this would have to be negotiated as to which tariffs
remain unbound, thus giving the acceding LDCs very little policy space.
The acceding LDCs, according to the new Guidelines, would also have
to bind their agricultural tariffs at an average of 50% and their
NAMA tariffs at an average of 35%. This will mean the bound tariffs
of the newly acceding LDCs will be below the average bound tariffs
of many current non-LDC and LDC WTO Members.
Especially surprising is that the draft new Guidelines appear to provide
no specific transition period for the acceding LDCs in reducing their
tariffs, except for 10% of tariff lines if the LDC does not make use
of the flexibility of 5% of unbound NAMA tariffs.
This sharply contrasts with the transition period of 10 years or even
14 years that were given to several countries (including non-LDCs)
when they acceded to the WTO.
The new Guidelines are non-binding, and will not prevent acceding
LDCs from having to agree to obligations that are more onerous than
the Guidelines or the commitments by existing developed, developing
country or LDC WTO Members.
LDCs which have acceded to the WTO so far have made extensive commitments
(including commitments beyond those made by developing country Members
or as in some cases, developed country WTO Members).
This situation has highlighted the need for fairer terms for acceding
LDCs that are in accordance with their level of development and development
The proposed new Guidelines would appear to make only some marginal
improvement over some of the terms that some acceding LDCs have agreed
to in the past and are worse in some important areas than past LDC
and non-LDC accessions.
The new Guidelines are contained in a proposed Addendum to the 2002
LDC Accession Guidelines. This Addendum would co-exist with the 2002
LDC Accession Guidelines.
Negotiations on the new Guidelines in the LDC Sub-Committee took place
over several weeks. However, according to some trade diplomats, the
agreement by the LDC Sub-Committee on the new Guidelines was a surprise
to some, as they did not yet have the opportunity to fully discuss
the provisions or their implications.
The LDC Sub-Committee agreed on 29 June to send the new Guidelines
to the General Council (see SUNS #7406 dated 9 July 2012). They are
scheduled to be discussed by the General Council for their possible
adoption at its next meeting on 25-26 July.
The four-page new Guidelines also have sections covering benchmarks
on services, transparency in accession negotiations, special and differential
treatment and transition periods and technical assistance.
A preliminary analysis of the new Guidelines shows that its benchmark
of 100% binding of agricultural tariffs at an average of 50% is lower
than that of even some developed countries. Iceland and Norway currently
have average bound agriculture tariffs of 109% and 131% respectively.
It is also lower than the average bound agriculture tariffs of many
developing countries, some of which have average rates of 70-116%.
Even if the current Agriculture Chair's text in the Doha Round is
accepted and the Round concluded, several of these developing countries
would have average bound rates above 50%.
For NAMA, the new Guidelines' requirement for acceding LDCs to bind
95% of their NAMA tariffs is higher than Iceland's binding coverage
(94%) and higher than many other original WTO Members including those
with high GNP per capita, such as Hong Kong China (37%), Israel (71%),
Singapore (65%) and Turkey (43%).
The LDC Group had proposed in 2011 that these new Guidelines only
require acceding LDCs to do the same amount of liberalisation as original
LDC WTO Members. For NAMA binding coverage, this would mean binding
48% of their NAMA tariffs, but the new Guidelines require almost double
The new Guidelines state that acceding LDCs shall bind NAMA tariffs
at an average rate of 35%. This is lower than some original WTO Members,
including Kuwait, Pakistan, Costa Rica, Tunisia and Indonesia.
The analysis shows that some of the likely impacts on acceding LDCs
of binding tariffs at these low averages include:
* Making it more difficult to industrialise. As Dr Mehdi Shafaeddin,
the former Head of the Macroeconomics and Development Policies Branch,
United Nations Conference on Trade and Development (UNCTAD), notes
in "Is Industrial Policy Relevant in the 21st Century?"
(TWN Trade and Development Series 36), no country (except Hong Kong
China) has managed to industrialise without going through the infant-industry-protection
phase. If acceding LDCs are required to bind their tariffs at these
low rates, it will reduce their ability to use infant-industry protection
to industrialise the way today's developed countries did.
* Permanent loss of tariff revenue. According to the International
Monetary Fund (IMF), some LDCs rely on tariff revenue for more than
76% of their government revenue. (Whereas in countries in the Organisation
for Economic Co-operation and Development, tariff revenues represent
on average 1% or less).
If acceding LDCs cut their tariffs, according to IMF economists Thomas
Baunsgaard and Michael Keen (in their staff Working Paper WP/05/112),
low-income countries are at best likely to recover 30% or less of
this lost tariff revenue from other taxation sources. The two IMF
economists note that a value-added tax is not proven to make up for
the lost revenue from lowering tariffs.
* In terms of the impact on goods trade balance, some acceding LDCs
such as Liberia have already had a persistent goods trade deficit
of 41-56% of GDP from 2007-2010; and Sao Tome and Principe has had
a persistent goods trade deficit of 38-46% of GDP from 2007-2010.
The new Guidelines' requirement to bind their tariffs at low rates
restricts their ability to use tariffs to rectify existing persistent
The proposed Addendum specifies that in the case where they bind more
than 95% of their NAMA tariff lines, acceding LDCs can have a transition
period of up to 10 years for up to 10% of their tariff lines. However,
it is silent about transition periods for the other paragraphs. This
could imply that under the new Guidelines, acceding LDCs have no automatic
transition periods for agriculture tariff cuts.
For NAMA tariffs, there is only a transition period for the particular
case of transition period for up to 10% of tariff lines if they do
not make use of the flexibility of 5% unbound tariffs.
However, other acceded countries who are more developed (i. e. not
LDCs) received as long or longer transition periods, for example:
* China, Jordan and Panama received a transition period of 10 years
for agricultural tariff reductions. Panama also got a 14-year transition
period for its NAMA tariff reductions.
* Viet Nam received a transition period of 12 years for its NAMA tariff
* China, Jordan and Saudi Arabia, as well as, among LDCs, Cambodia,
Cape Verde and Nepal, received a transition period of 10 years for
their NAMA tariff reductions.
Therefore, acceding LDCs should receive longer transition periods
than 10 years, but the new Guidelines do not provide for this.
In services, LDCs which have joined the WTO since 1995 have been required
to liberalise as many as 94 service sub-sectors out of 128-163 sub-sectors
(depending on how the sub-sectors are counted), compared, for example,
to two sub-sectors for original non-LDC WTO Members such as Fiji.
Although the LDC Group, in its November 2011 proposal, attempted to
address this by setting services benchmarks based on the average number
of commitments by original LDC Members of the WTO, the proposed new
Guidelines do not include this.
The new Guidelines, instead, state that acceding LDCs shall not be
required to undertake commitments in services sectors and sub-sectors
beyond those that have been committed by existing WTO LDC members.
This could imply that demands could be made on the acceding LDCs to
commit up to the extent of the most liberalised existing LDC WTO Member,
such as Gambia (with 12 out of 12 sectors committed) or Cambodia (with
94 sub-sectors committed).
EFFECTS ON OTHER COUNTRIES
The terms of accession for LDCs also have implications for other countries.
If the acceding LDC is in a customs union, its new bound tariffs can
influence or determine the common external tariffs of the customs
union and thus of other members of the union. There are at least three
customs unions with LDCs that are attempting to accede to the WTO.
The new Guidelines could also affect non-LDCs that are in the process
of joining the WTO, as developed countries may ask them for commitments
that are greater than the new Guidelines for LDCs.
COMPARISON WITH RECENT ACCESSIONS
It may be argued that the new Guidelines are still better in some
areas than what recently acceded LDCs have had to undertake. However,
the more appropriate comparison perhaps is to the obligations that
original WTO developing countries and LDCs have to undertake.
In this context, the acceding LDCs are being unfairly asked to take
on obligations far more onerous than original WTO LDC or developing
The comparison to the acceded LDCs is not a fair one because it was
the onerous terms of acceded LDCs that catalysed the move to have
new Guidelines so that the newly acceding LDCs would not have to take
on such onerous conditions.
Compared to acceded LDCs, the tariff reduction requirements in the
new Guidelines are only marginally better than that of some of the
acceded LDCs. And in a major area - transition periods - it can be
argued that the new Guidelines do not provide for treatment as good
as acceded LDCs or even acceding developing countries obtained.
It is worth recollecting that when the WTO was brought into being,
the Uruguay Round Agreements allowed all Members, including developed
countries, transition periods to implement their new commitments in
agriculture and NAMA.
(* Sanya Reid Smith is a trade researcher at the Third World Network.)