From Bali to Nairobi: Securing a meaningful outcome for LDCs

10 December 2015

As trade delegates gear up for the WTO’s Tenth Ministerial Conference in Nairobi, Kenya – the first such meeting to ever be held in Africa – expectations are high that the conference will, at least, deliver concrete progress on a development-oriented package for the organisation's poorest members.

Least developed countries’ (LDCs) issues received a renewed impetus in 2013 during the WTO’s Ninth Ministerial Conference in Bali, Indonesia, when ministers adopted, among other  elements,  four  LDC-related  decisions  on  duty-free  quota-free  (DFQF)  market access, preferential rules of origin, operationalisation of the LDC services waiver, and on cotton. LDCs now want “substantive, binding, LDC specific decisions which should be commercially meaningful on all four elements of the Bali package,” said Ambassador Shameem Ahsan of Bangladesh, Coordinator of the LDC Group at the WTO, in a recent interview.

Constituting only a subset of the overall development pillar, which itself is part of a broader set of issues being considered under the Doha Development Agenda (DDA), the LDC package attempts to address some of the structural constraints which the world’s poorest countries face when participating in global trade. As some experts note, most LDC issues are bilateral in nature and therefore follow their own dynamics, compared to other areas such as agriculture or rules where the setting is truly multilateral and where positions are significantly more entrenched.

The run-up to the Nairobi ministerial conference has, however, also shown some of the political constraints surrounding these discussions across the broader WTO membership, in some cases highlighting some of the limits of the solidarity between developing – and emerging – countries.

Some noticeable progress

Along with the 2013 Bali package, other LDC issues have gained traction over the years, despite slow progress in the overall Doha talks. For example, a waiver that would allow members to grant preferential treatment to services and service suppliers from LDCs was adopted in 2011  and followed by a practical process which culminated this year with – at press time – 19 notifications from WTO members of concrete sectors and modes of supply where they intend to provide preferential treatment to LDC services and services suppliers. Two of the other decisions that emerged from the 2011 ministerial conference, specifically involving LDC accessions and their implementation of intellectual property rules, have also seen advances at the global trade body.

At the 2011  ministerial, WTO members committed to revise the accession guidelines for LDCs, agreeing to strengthen, streamline, and operationalise the previous 2002 version. These revised guidelines were approved by the General Council just before the mandated deadline  in  July  2012.  These  establish  a  series  of  benchmarks,  particularly  regarding goods market access, as well as elements on Special and Differential Treatment (S&DT), transition periods, transparency, and technical assistance.

Since then, Yemen and Seychelles, both LDCs, have joined the organisation’s ranks. Out of the LDCs that have been negotiating their membership terms since 1995, two accession packages for Afghanistan and Liberia were finalised this year and will be presented at the Nairobi Ministerial Conference for formal adoption. Six more LDCs are currently negotiating to join the WTO: Bhutan, Comoros, Equatorial Guinea, Ethiopia, Sao Tomé and Principe, and Sudan.

This year was also marked by the 17-year  extension of the transitional period for LDCs to enforce global trade rules protecting pharmaceutical patents and clinical data, with a new expiration date now set for 1 January 2033. Lately, the question of extending this transition period for the WTO’s poorest members had taken on a particular urgency, given that the existing version was set to expire on 1 January 2016.

Two years ago, WTO members agreed to extend a separate transition period for LDCs to apply the provisions of the full TRIPS Agreement until July 2021.

A “mini” package for LDCs in Nairobi?

At a time when developed and emerging countries’ respective positions seem hopelessly fixed, particularly on how to advance “core issues,” many observers suggest that there is still a chance for LDCs to secure some commitments in Nairobi, which would also help ensure the credibility and the inclusivity of the multilateral trading system. To date, a range of proposals related to LDC issues have been put forward, with the LDC Group also circulating a submission on 5 November outlining the priority issues that they wished members to consider during the Nairobi ministerial conference.

A good step forward on services waiver

If finding consensus in other areas of relevance for LDCs has proved difficult so far, prospects are looking up for the operationalisation of the services waiver, following the progress seen this year. During a review of the notifications of preferential measures for LDC services and services suppliers at the WTO’s Council on Trade in Services (CTS) on 2 November, the LDC Group lauded efforts by WTO members to advance services supply from LDCs.

Agreed at the 2011  Geneva ministerial conference, the LDC services waiver decision had initially struggled to gain traction. In the years that followed, no preferences were requested by LDCs or granted to them, prompting WTO members to reconsider ways to move this decision forward.

In July 2014, the LDC Group submitted a collective request regarding the preferential treatment it wanted to see for its members’ services exports. At a high-level meeting in February this year, 22 WTO members responded to this collective request by indicating sectors and modes where they were considering providing preferences as well as support for projects on technical cooperation.

Since then, the LDC Group has been encouraging WTO members to formally notify the CTS of their actual preferences, including detailed information regarding the sectors or sub-sectors concerned and the period of time during which the member plans to maintain those preferences.

The assessment report of the notifications presented during the 2 November meeting put clear emphasis on the importance of these notifications as the only means to bring the services waiver into effect.

To date, 19 WTO members, including the 28-nation EU, Canada, Australia, Norway, Korea, China, Hong Kong, Chinese Taipei, Singapore, New Zealand, Switzerland, Japan, Mexico, Turkey, the United States, India, Chile, Iceland, and Brazil have submitted notifications. Another notification from South Africa is reportedly underway and should be submitted soon.

During the CTS meeting, the LDC Group noted that all four modes of supply and more than half of the sectors listed in the LDCs’ collective request under the waiver had been covered.

The LDCs also welcomed the fact that some WTO members managed to provide preferences beyond the market access provisions under Article 16 of the General Agreement on Trade in Services (GATS). In a recent submission on the services waiver, the group urged the CTS to approve such measures “expeditiously.”

Though the waiver decision does allow such an extension, notifications so far – with a few exceptions – have restricted themselves to Article 16, which deals with market access. Non-market access measures are not automatically covered, but can be authorised by the CTS.

The LDC Group, however, expressed various concerns regarding the lack of preferences on Mode 4, which concerns the movement of physical persons; insufficient clarity in individual notifications on where preferences are being granted; the risk of preference erosion; the need to improve some of the preferences; and the waiver’s duration.

The draft text slated for Nairobi contains binding language on reducing administrative procedures and fees for visas, work permits, residence permits, and licenses in favour of LDC service suppliers and independent professionals as well as on the issue of mutual recognition of qualification. Some trade experts have, however, commented that while this constitutes an important request, it will likely be very sensitive to address given the political sensitivities involved.

In the draft decision, the LDC Group recognises the efforts made by WTO members in notifying preferences to date, urging those members who have not done so to expedite their notifications.

The draft text also specifies that further guidance may be needed to clarify the definition of “preferential treatment” as referred to in the WTO services waiver decision.

Generally, WTO members, particularly developed country members, agree that turning these preferences into real market opportunities will require LDCs to confront their supply side capacity constraints and reform their domestic regulatory framework, which the draft decision acknowledges. The text further calls upon WTO members to give priority attention to addressing regulatory barriers that impact LDC services trade.

One key feature of the draft decision concerns the waiver’s duration, which the LDC Group says was “depleted by three years” before the first notifications materialised this year. LDCs therefore request an extension of 15  years for the services waiver from the date of the notification.

The text also requests additional definition of the term “preferential treatment” in the sense of the waiver.

Rules of origin: a “shall” commitment this time?

WTO negotiators first attempted to address the issue of preferential rules of origin (RoO) in the context of the DFQF initiative, which was introduced at the WTO’s First Ministerial Conference in Singapore in 1996.

Little progress was made in the following decade, although the 2005 Hong Kong Ministerial Declaration does feature a brief reference calling upon developed countries and developing countries in a position to do so to design “simplified and transparent rules of origin so as to facilitate exports from LDCs.”

Since the ministerial conference in Bali, the LDC Group has been actively pursuing work to operationalise the guidelines on RoO adopted by ministers through various submissions: a report was presented in October 2014 by the Group to the multilateral organisation’s Committee on Rules of Origin (CRO), calling for a more effective design of preferential RoO; the LDC Group then submitted a paper aimed at stimulating a discussion among WTO members with regard to the implementation of the Bali ministerial decision on RoO.

Since last September, the LDC Group has revisited the subject on several occasions with various RoO submissions.

According to LDCs, existing preferential RoO are old, have not followed evolutions in world trade and, therefore need to be reformed. In its 2014 report, the Group used the examples of RoO reforms in Canada (2003) and the EU (2011)  to illustrate how a shift towards more lenient and flexible RoO can be conducive to development in preference- receiving countries and invited some WTO members, particularly the United States and Japan, to review the substance and form of their RoO systems.

Another challenge consists in finding a common ground on the various methodologies that exist for establishing substantial transformation designed to evaluate the extent of meaningful local production. Part of the complexity of this issue is that no single methodology stands out as being the most appropriate to confer origin across all product categories.

A submission on RoO dated from 21  September triggered mixed reactions within the WTO membership as some were concerned that the LDC Group proposal went beyond the Bali decision or would require substantial changes in their national systems which they were not in a position to offer at this stage. Other countries raised questions over the push to obtain legally binding obligations as articulated in the LDC proposal at the time. Active discussions on this issue have been ongoing since then.

The use of the term “shall” instead of “should” in the most recent submissions seems to indicate that the group seeks to include binding elements in the Bali decision on preferential rules of origin, which was previously adopted in the form of non-binding guidelines essentially outlining technical aspects of RoO.

Recent submissions show that the members have been discussing extensively the threshold level of value addition, which have oscillated between 75 percent down to 60 percent over the past few weeks. The threshold level would determine the amount of foreign inputs allowed to make up a product’s value in order to qualify for preferential treatment.

Discussions have also focused around the inclusion of differential treatment for developing country preference-giving countries such as India, Brazil and Chile.

The most recent draft text includes provisions regarding    cumulation,    simplification of documentary requirements and implementation   and  transparency, specifying  31 December  2016  as  a  deadline  for preference-granting members to notify measures in compliance with its terms. A chair's report and bracketed draft text has now been sent to MC10 for possible negotiation.

Cotton on the table, again

A group of West African cotton producers, collectively known as the C-4, have long pushed for a change in the WTO’s rules on cotton, arguing that developed countries’ subsidy schemes have kept global prices of the commodity artificially low and hurt their cotton-dependent economies. So far, the trade aspects of cotton have seen few advances, reflecting the limited progress in the overall agriculture negotiations within which cotton is being considered.

Last October, the C-4 African countries tabled a wide-ranging draft decision, building on nearly a decade of negotiations, dating back to the 2005 call by ministers in Hong Kong to address the subject “ambitiously, expeditiously and specifically.” This proposal on cotton for Nairobi includes action in the areas of market access, domestic support, export competition, and development assistance. To date, prospects for a ministerial decision on select elements of the paper appear to be within reach. (For more details on cotton, please see the agriculture briefing in this edition).

Searching for consensus on DFQF

DFQF market access was a prominent item in the “LDC package” at the 2013 ministerial conference in Bali, where WTO members were asked to improve their DFQF coverage for LDC products. This follows the 2005 Hong Kong Ministerial Conference when developed countries and developing country members “declaring themselves in a position to do so” agreed to implement DFQF market access for products originating from LDCs. For WTO members with difficulty meeting this requirement, the text included the option of providing DFQF access for 97 percent of LDC products, while working to progressively achieve full compliance.

Although some progress has been made since then, significant hurdles remain and the debate has concentrated on the potential gains under a 97 percent DFQF scheme – since the three percent of excluded tariff lines could potentially cover between 90-98 percent of all LDC exports – versus full coverage, as well as on the position of some members regarding increasing duty-free tariff lines for LDCs.

For example, the US provides nearly complete duty-free access for several African LDCs through  the  African  Growth  and  Opportunity  Act  (AGOA),  which  was  renewed  for another decade in June 2015. However, Washington remains reluctant to include textiles and apparel in its duty-free treatment, which are key areas for Asian LDCs. Additionally, given their increased role in world trade, many LDCs argue that large emerging markets could also further extend their DFQF coverage.

In that regard, China, India, and Chile announced in 2014 that they would make certain improvements, with Chile and India submitting a formal notification. China declared last year that it will extend zero tariff treatment to 97 percent of tax items from LDCs by the end of 2015. In a similar vein, last month India notified the WTO Council for Trade in Goods that it would raise the share of tariff lines covered by the programme from 94 percent to 98.2 percent, without reporting specifically the duty-free coverage of the revised scheme.

Members have struggled with multiple hurdles in trying to achieve a concrete outcome in this area. One of these comes from within the LDC Group itself, as some members fear the possibility of “preference erosion.” Many LDCs benefit from non-reciprocal preferences granted primarily by developed countries, but applying DFQF to all LDCs could result, however, in some countries losing their competitive advantages that such preferences have provided.

WTO members agreed this autumn at a dedicated session of the organisation’s Committee for Trade and Development that the WTO secretariat would complete a study on the implementation of the Hong Kong ministerial decision on DFQF market access by mid-November 2015. According to informed sources, members could not agree on the parameters of the study. Discussions on the DFQF issue, despite the momentum, are now more likely to continue in a post-Nairobi context.

According to informed sources, the LDC Group is proposing to resolve the DFQF issue for all LDCs by conducting a tariff line analysis with regards to clothing. The objective is to determine which tariff lines should be included under DFQF while preserving preferences under the US’ AGOA and the Cotonou Partnership Agreement involving the EU.

The  LDC  Group  has  specified  that  any  outcome  on  the  DFQF  market  access  issue requires binding commitments from preference-granting countries through appropriate scheduling.

At the time of this writing, no specific textual proposal had been tabled either by the LDC Group or by any of its members individually.

Another missed opportunity for S&DT?

Special and Differential Treatment (S&DT) constitutes a central element of the Doha Round’s development dimension. As an overarching principle intended to ease the integration of developing countries and least developed countries into the multilateral trading system, it provides those countries with special rights and preferential treatment. S&DT provisions cover transitional time periods, flexibility of commitments, measures aimed at increasing the trade opportunities of developing countries and safeguarding their trade interests, as well as trade-related technical assistance. Some S&DT elements also specifically target WTO’s poorest members, the LDCs.

In 2001, ministers agreed in Doha that all S&DT provisions contained in WTO agreements should be reviewed, with a view to strengthening them and making them more precise, effective and operational. This mandate, as contained in paragraph 44 of the 2001 Doha Ministerial Declaration, has since formed the basis for the work on S&DT undertaken by WTO members. This work, despite a clear mandate and efforts by members, has so far only yielded very limited results.

A total of 88 S&DT proposals were tabled in the Special Session of the Committee on Trade and Development (CTD SS), mostly by the African Group and the LDC Group. Although members then agreed in principle on a group of 28 proposals (out of the original 88) in the run-up to the Cancún ministerial in 2003, the breakdown of the conference relegated the proposals to the “waiting room.”

The only notable step forward since Cancún regarding work on these 88 agreement- specific proposals has been the adoption, in Hong Kong in 2005, of five LDC-specific decisions – based on six of the proposals. These include a decision on DFQF market access for LDCs. Other attempts to advance some of the proposals since then have failed to produce any meaningful result, notably in 2011  or in 2013 in the lead-up to the Bali Ministerial.

In Bali, WTO members nonetheless agreed on a Monitoring Mechanism, which had first been proposed by the African Group in 2002. The purpose of this mechanism is to provide, within the WTO system, a focal point for the monitoring of S&DT provisions, via written input from WTO members and other WTO bodies. Four dedicated sessions of the CTD took place since the mechanism’s adoption, but the lack of written submissions has so far prevented any substantive discussion in that framework.

In July 2015, the G-90 – which comprises the African Group, the LDC Group, and the ACP Group – has tabled 25 S&DT proposals, seeking to revive talks on reviewing existing S&DT provisions and aiming for a potential result at this year’s Nairobi ministerial. However, discussions on the basis of this submission, and a subsequent revision submitted in November by the G-90, have so far failed to produce a consensus on a set of proposals that  could  be  transmitted  to  ministers  for  adoption  this  December.  In  particular, some provisions aimed at preserving more policy options for developing countries’ industrialisation strategies have proven particularly contentious.

Members also remain divided on the thorny question of differentiation. Developed countries seem willing to seriously consider some of the proposals, but insist on being able  to  know  who  would  be  able  to  benefit  from  those  provisions.  The  November revision submitted by the G-90 attempted to take a step in that direction, by trying to refocus some of the proposals on LDCs and SVEs. Although several developed countries have indicated their willingness to consider “LDC plus” provisions, some also argue that language including SVEs does not provide enough certainty, since no formal category exists for such countries at the WTO.

While the Chair of the CTD SS had identified a small subset of proposals that could be able to garner more support, no consensus had emerged at the conclusion of talks in Geneva on the S&DT issue.

EIF pledging conference: A potentially significant outcome

In its November submission highlighting LDCs’ priorities for Nairobi, the LDC Group called on WTO members to enhance capacity building measures, explicitly mentioning Aid for Trade and the Enhanced Integrated Framework (EIF).

The second phase of the EIF, a multi-donor Aid for Trade programme designed exclusively for the LDCs, was launched in July at the WTO. The EIF will hold its pledging conference for phase two alongside the Nairobi Ministerial, which will be of crucial importance for the programme’s ability to deliver for the organisation’s poorest members in the coming years. As underlined by WTO Director-General Roberto Azevêdo at the launch of EIF’s second phase, a successful pledging conference would be a significant outcome of the ministerial conference.

The  Aid for Trade  Initiative  seeks to mobilise resources to address  the  trade-related constraints identified by developing and least developed countries. Since the initiative’s 2006 launch, almost US$250 billion have been disbursed in aid-for-trade programmes and projects, according to the latest Aid for Trade at a Glance report by the WTO and the Organisation for Economic Co-operation and Development (OECD).

However, funding through Aid for Trade is often perceived by some LDCs as not being equally distributed. For example, over 40 percent of total country-specific disbursement since 2006 is concentrated on the top 10 recipients, among which only three are LDCs – Afghanistan, Ethiopia, and Tanzania. LDCs, which have received 31 percent of Aid for Trade disbursements between 2006 and 2013, often claim that they are not receiving their fair share.

Conclusion

At this stage, it is clear that Nairobi will not constitute an ideal resolution of the DDA. However, it could be an opportunity for LDCs to obtain concrete results on a subset of issues of particular interest to them, to assert the need to continue the work on other topics, and above all to reaffirm the importance they attach to the multilateral trading system.

In a context marked by the proliferation of preferential agreements, such as mega- regionals, many analysts warn that LDCs might be severely affected if major players continue to pursue large trade pacts elsewhere without concurrently aiming for significant progress within the WTO negotiating framework. Be it within the Doha mandate or via a new format, these experts suggest that it is crucial for LDCs that meaningful international trade negotiations continue to be conducted in an inclusive forum, allowing them to pursue shared goals on trade together.

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