Challenges facing LDCs in Bali and Beyond

15 November 2013

What is the way forward for LDCs in a post-Bali and post-Doha context?

Because of their structural handicaps reflected in low income levels, high economic vulnerability and weak human assets, least-developed countries (LDCs) face particular challenges in integrating into the global economy. As the weakest players on the international scene and given their high dependence on international trade, LDCs have - almost by definition - a strong interest in a well-functioning, rule-based multilateral system to govern economic interdependencies, provided cooperative arrangements account for LDCs special handicaps and vulnerabilities.

In this respect, the current impasse of the Doha Round poses a set of interrelated challenges to the LDCs. As we move towards the Ninth Ministerial Conference in Bali (MC9), such challenges can be broadly divided into three categories:  (a) issues around the Bali package itself and particularly the balance among its various components, namely trade facilitation, some elements of agriculture and development concerns; (b) systemic issues in the post-Bali context, including concerns about plurilaterals and the notion of a single undertaking; and (c) the need for the system to respond to a set of pressing "non-Doha" development issues that have emerged in recent years.

The way in which WTO members respond to these three sets of issues will ultimately define success in Bali and beyond. The general sense is that a failure to deliver on the so-called small package would constitute a major setback, putting de facto an end to the Doha negotiations. But, the extent to which members succeed in defining a credible post-Bali road map to address unresolved issues might be as important as the package itself. In this respect, agreeing on a small deal - as significant as it may be - will constitute only a necessary, but not a sufficient condition for success. From an LDC perspective, while several elements of the package are LDC specific, all three areas highlighted above are of critical importance to the group.

The Bali package

Paradoxically, the largest benefits for LDCs in Bali might result from a possible agreement on trade facilitation - an area where LDCs are not the main demandeurs. In a world increasingly dominated by global value chains, the gains accruing from simplified customs procedures and lower transaction costs are well established. But, the most significant gains are likely to arise from a possible boost in intra-regional trade, where a considerable growth potential remains untapped. Granted, some countries will have real difficulties in implementing certain elements of the proposed agreement in the absence of technical assistance and capacity building. These concerns have largely crystallised around the need to balance section I and II of the draft. But, the proposed deal potentially contains a set of landmark provisions, allowing for flexibility in the scheduling and sequencing of implementation and linking commitments to acquired capacity resulting from technical assistance.

The other elements of the Bali package are less likely to result in tangible gains, at least in the immediate term, as illustrated by the establishment of a monitoring mechanism on special and differential treatment, which constitutes a welcome development but remains a rather procedural issue. The proposed decision on rules of origin, as important as it is, constitutes only a best-endeavour agreement. Similarly, there is little to expect on the joint proposal by Mali, Chad, Benin and Burkina Faso (C4) on cotton, which came late in the process or on duty-free quota-free market access, where LDCs themselves have not managed to overcome their internal divisions. On a more positive note, the proposed decision on the services waiver constitutes a significant step forward in the establishment of unilateral preferences in services, even if it essentially constitutes a process outcome. Finally, agreements on agriculture, improvements in tariff rate quotas administration or the possibility to increase government subsidies as suggested by the G33, will do little to address LDCs food security concerns, not least because most of the LDCs do not have the financial resources to benefit from such flexibilities. This is not to say that LDCs do not have stakes in food security. As net food-importing countries, LDCs have been hit hard by recent price spikes further accentuated by policy responses, such as export restrictions or biofuels policies. As a result, they have seen their food import bills growing to worrying levels while productivity growth has remained stagnant, putting large segments of their populations at risk. These concerns, largely associated with the new price environment prevailing in agriculture, will require targeted responses from the system. While they will not be resolved in Bali, LDCs might consider addressing them as part of a post-Bali work programme on food security.

Systemic issues in the post-Bali context

Beyond the intrinsic value of the Bali package, reaching an agreement at MC9 will demonstrate that the system is able to deliver. Under this scenario, the next step will consist in capitalising on the Bali success to move forward and ultimately close the Doha Round. Yet, in the absence of a significant change in the border policy environment, a "business as usual" approach is unlikely to yield results that are radically different from what WTO members have achieved so far. Mindful of this reality, several members are exploring new ways of conducting negotiations as already hinted at by Ministers at the December 2011 Ministerial Conference. Under this scenario, the single undertaking principle is likely to be further questioned, and pushes for plurilateral approaches will probably intensify. The proposed plurilateral on services, - the so-called Trade in Services Agreement (TiSA) - is symptomatic of this trend, but plurilaterals might also be initiated in areas such as environmental goods and services (EGS) or even concluded in Bali, for example, on information technology (IT).

From the perspective of LDCs, which essentially remain "deal takers" in multilateral negotiations, the prospect of plurilaterals outside of the WTO realm is of particular concern. This is both because such agreements tend to be exclusive and because removing certain elements from the Doha equation would result in fewer trade-off opportunities for LDCs to advance their priorities in areas such as food security or market access. Under such a scenario, the risk is therefore high that LDCs specific concerns will retain less attention and become increasingly marginalised, as larger trading powers focus their attention on their own priority issues. While the LDCs are not in a position to stop plurilaterals from happening, they should use their limited influence to ensure that such agreements remain as much as possible under the purview of the WTO, while devising strategies to advance their priorities under the new negotiating configuration.

Beyond Doha, the need to address 21st century issues

The third challenge lying ahead for LDCs relates to the need to look beyond Doha. Today's world is quite different from the one we had in 2001 when the Doha Round was launched. And, many of the challenges LDCs face today were not even in the minds of negotiators at that time. The emergence of greater public policy concerns - including climate-change mitigation and adaptation, natural resource scarcity, food security in times of high and volatile prices, or the need to scale up renewable energy production and diffusion - requires coordinated responses from the trade regime. The fragmentation of production through highly complex global value chains and the revival of industrial policy pose further development challenges at the policy level. Alongside those new issues, preferential trade agreements continue to proliferate and are increasingly converging into "mega-regionals" from which LDCs remain largely excluded. Many of these issues will not be discussed at MC9, but they won't go away and will only grow in importance in the post-Bali environment. A first step might consist in providing a space to explore such emerging challenges in a non-negotiating setting to assess whether the WTO rule book is properly equipped to deal with them or whether existing disciplines need to be clarified or amended. Given that LDCs have major stakes in all these areas, it will be in their interests to articulate their needs and priorities in a proactive manner and rather sooner than later.

Author: Christophe Bellmann is the Programmes Director at ICTSD.

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