TWN Info Service on WTO and Trade Issues (July12/01)
23 June 2012
Third World Network

Guidelines 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 countries.

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 objectives.

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.

GOODS

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 that.

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 trade deficits.

TRANSITION PERIODS

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 reductions.

* 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.

SERVICES

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 Members.

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.) +