LDCs accession to the WTO

22 July 2013

Becoming a member of the WTO is an extremely difficult process, especially for the least developed countries (LDCs). The Vanuatu experience, analysed in the following article, reveals the complexity of this process. Indeed, acceding to the WTO can be long-drawn, complex and demanding on the limited resources and capacity of the LDCs. Usually, the full scale of the numerous politically challenging reforms that applicants are required to undertake become clear only after accession talks have started. In fact, the acceding country holds bilateral meetings with interested individual WTO members. These talks cover specific market access concessions and commitments (in terms of tariff rates, binding coverage, and specific services commitments), and other related rules and regulations in goods and services, to be applied on a most-favoured-nation basis. This process can take several years, and in practice every WTO member has to agree with the concessions and commitments made by the acceding country. At the end of the negotiating process, the working party finalises the terms of accession which define the rights and obligations agreed upon by the acceding country. The final accession package is presented to either the WTO General Council or the Ministerial Conference, which then approves the new membership, usually by consensus. The process is completed when the acceding country ratifies the accession protocol.

A complicated and long process

While thirty LDCs joined the WTO at the moment of its creation in 1995, only six LDCs have acceded to the organization in recent years. Currently, 34 out of 49 LDCs are member of the WTO, with nine more negotiating accession. Since 1995, Cambodia (2004), Nepal (2004), Cape Verde (2008), Samoa (2012), Vanuatu (2012), and Laos (2013) have acceded to the WTO. Recently acceded LDCs have long complained that WTO members routinely ask them to take on commitments beyond their capacity during the bidding process. These commitments also tend to exceed those required of LDCs and other developing countries that joined the organisation in its early years.

As part of the requirements to join the WTO, a country needs to establish the binding coverage of its tariff structure (e.g. the percentage of tariff lines that members agree to bind at a certain level), and define the level of its bound rates (i.e. the maximum tariff rate agreed to by each WTO member for each tariff line).

The WTO agreement on agriculture requires all members, including the LDCs, to bind all agricultural tariff lines. No such requirement exists for industrial goods, and so the level of binding coverage for industrial goods imports varies considerably among WTO members. Among the thirty LDCs that joined the WTO in 1995, only eight have bound all of their non-agriculture market access products (NAMA) tariffs, whereas the remainder left the vast majority of their NAMA lines unbound. However, the situation is very different for the recently acceded LDCs: these countries have had no choice but to go for a 100 percent binding coverage with the exception of Nepal, which has the flexibility to leave unbound a few sensitive tariff lines (Nepal bound 99.3 percent of its NAMA tariff lines).

In terms of tariff level, the average bound tariff in agriculture is about 47 percentage- points lower in the case of the six recently acceded countries, whereas for non-agriculture market access products (NAMA) they are about 21 percentage-points lower. Indeed the first LDC members that joined the WTO did so under less stringent conditions that the recently acceded LDCs. Acceding LDCs have struggled to maintain a certain level o"policy space" as well as flexibility to leave unbound tariff lines considered as sensitive and to keep the bound tariff for certain lines higher.

The 2012 accession guidelines for LDCs

In July 2012, the WTO General Council formally approved new guidelines for LDC accession, which establish benchmarks on goods and services as well as elements on special and differential treatment, transition periods, transparency, and technical assistance. These new guidelines are intended to further strengthen, streamline, and operationalise the 2002 LDC accession guidelines and facilitate LDC accession to the WTO. In fact, with the establishment of qualitative and quantitative benchmarks in the areas of goods and services they provide a reference framework to the bidding process during the bilateral and multilateral talks with WTO members.

According to the new guidelines, acceding LDCs shall bind all agricultural tariff lines at an overall average rate of 50 percent. This level is about 28 percentage-points lower than the average of the 30 LDCs which joined the organisation in its early years, but 18 percentage-points higher than the recently acceded LDCs. With regard to NAMA, the guidelines provide two options: acceding LDCs can bind 95 percent of their NAMA lines at an overall average rate of 35 percent, or they can undertake more comprehensive binding coverage at higher overall average rates, to be agreed with WTO members. Acceding LDCs that choose to undertake this second option enjoys a transition period of 10 years for a maximum of 10 percent of their tariff lines before binding them.

In the area of services, the 2012 guidelines identify a series of principles, along with defining some limits that shall inform accession talks. The guidelines, however, fall short of establishing measurable and clearly enforceable benchmarks as in the case of goods. For instance, "there shall be flexibility for acceding LDCs for opening fewer sectors, liberalising fewer types of transactions, and progressively extending market access in line with their development situation." In addition acceding LDCs will not be expected to offer full national treatment, or undertake additional commitments under Article XVIII of the General Agreement on Trade in Services on regulatory issues "which may go beyond their institutional, regulatory and administrative capacity."

The lack of a clear benchmark on services, however, has been criticised by some trade observers and LDCs officials, who claimed that more might have been needed to ensure LDCs not face overly stringent requests in that area. A former Swiss diplomat also commented that "the proposed benchmarks on services are a missed opportunity, the text [...] clearly shows that no serious effort has been made to show either the importance of services for the development of the countries concerned or to find some common ground on what would be a reasonable approach to services negotiations."

The text also includes sections on transparency, special and differential treatment (S&D)
treatment, and technical assistance.

Conclusion

It is probably too early to assess whether or not the adoption of the 2012 guidelines will succeed in their intent of facilitating the accession of the world's poorest nations into the WTO. This assessment will depend on how many LDCs will join the club and when, and under which conditions. Nevertheless, the adoption of the 2012 guidelines may be considered a positive outcome because in principle it allows LDCs greater flexibility in comparison with recently acceded LDCs. Moreover, they provide some benchmarks and other general principles that can guide accession talks in the coming years. Nevertheless, nothing in bilateral talks prevents WTO members from potentially making disproportionate demands from acceding LDCs, as was lamented by recently acceded LDCs.

This article is based on a longer study published by ICTSD, An Analysis of the WTO Accession Guidelines for Least Developed Countries, ICTSD, November 2012.

Author:
Paolo Ghisu is the Programme Officer for the Competitiveness and Development programme at the ICTSD.

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