New WTO regs to help LDCs become members

Moving coffee at the Ethiopian Commodity Exchange's warehouse. The exchange helps to boost exports and will likely play a bigger role as more sectors will open in the Ethiopian economy. Photo credit: DFID - UK Department for International Development/Pete Lewis

World Trade Organization (WTO) membership is a coveted status symbol in the economic and trade world, especially for developing countries.  Its members adhere to a set of rules meant to open up markets for their country’s goods and services as a catalyst for growth.  As of today there are 156 member states in the WTO.

Becoming a member is no small feat even for economically advanced nations, with the accession process taking up to a decade or more.  Russia became a member just this week, after 18 years of negotiations.  Currently in accession are Afghanistan, Bhutan, Comoros, Equatorial Guinea, Ethiopia, Laos, Liberia, Sao Tome & Principe, Sudan, and Yemen.

In 2002, WTO members adopted certain guidelines to facilitate and accelerate the accession of LDCs to WTO. The current global economic crisis has served to highlight the growing gap between developed nations and the world’s poorest.  Countries have been scrambling to protect their dying domestic industries with high import duties and other restrictions.  One example is Argentina’s import license requirements and administrative bureaucracy.

Intent on improving the accessibility of world markets and the high cost of membership, the WTO issued revised benchmarks specifically for LDCs on 26 June.  Changes will be instituted in the following five areas: benchmarks on goods, benchmarks on services, transparency in accession negotiations, special and differential treatment and transition periods, and technical assistance.

The changes boil down to setting tariff rates, or the tax on imported and exported goods and the number of products, or tariff lines, in a particular sector.  As Edwini Kessie of the WTO writes, “A tariff binding is a ceiling level or the maximum tariff that may be applied by a Member.  Normally, such rates cannot be increased or withdrawn, except when compensation is provided to countries with an interest in trade of that affected product.

Ricardo Dunn, Public Information Officer at the Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS), told MediaGlobal that “acceding LDCs should not be required to bind tariffs at average levels below 50 percent for farm products and 35 percent for industrial goods…In the area of services negotiations.”

Curiously, the changes come four years after the global market collapse and just months after an announcement by the WTO that South-South trade has been on the increase as a result of the decreasing economic power of developed countries.  In 1995, when the WTO was formed, all Members bound their entire agricultural tariff lines.

As Dunn explains, ”Full binding of agricultural tariff lines is a standard feature of WTO Members’ commitments,”, meaning setting the rate for 100 percent of all agriculture products.  However, he also notes, the negotiated 50 percent “is much higher than the average of the five LDCs that joined the WTO after 1995,” which was set at only 32 percent.

However, there are important factors the new benchmarks do not address which could prove to still be a hindrance to membership to LDCs.  According to Third World Network (TWN), the LDC group of the WTO “had proposed to bind only 48 percent of non-agricultural tariff lines at an average of 44 percent.”

By requiring the current rate, the ability to protect domestic infant industries could be hampered in a way that it was not for now-developed nations.  Acceding LDCs are now required to bind 100 percent of agricultural tariff lines at an overall average rate of 50 percent.  As TWN reports, “Iceland and Norway…have average bound agriculture tariffs of 109 percent and 131 percent respectively, and many other developing countries have agricultural tariffs far in excess of 50 percent.”

Wendwossen Shewarega, former Senior Attorney with a USAID-WTO project in Ethiopia, now serving as international trade law consultant regarding his nation’s accession to the WTO.  The agriculture rates benchmark should not pose a problem for Ethiopia due to a combination importing significant amounts of industrial goods and that their agricultural production is only for domestic use because of their unique diet.   Shewarega commented to MediaGlobal that “the real challenge set out by the new [benchmarks] will be in the area of non-agricultural (industrial) tariff rates.”

As it stands, the bound rates for non-agricultural goods is 35 percent. Shewarega continues: “This could lead to Ethiopia being requested to bind tariff lines at lower than 35 percent to bring this in line with the new benchmark set in the decision. On the other hand, the decision still maintains the right of WTO member countries to negotiate lower rates on tariff lines that are of interest to them….[and] may constrict acceding LDCs in how much policy space they will have to raise tariff rates in future.”

The new benchmarks can also be interpreted to read that non-member LDCs may need to commit to opening up several more sectors to trade, possibly having a higher open sector requirement than some current members, due to changing rules.   Sectors such as government procurement would most likely see the greatest impact.

“If the decision has taken [into consideration] original LDC WTO members, it would have meant far fewer commitments,” Shewerega notes.  “However, the acceded LDCs have made commitments in several service sectors.”

Another concern ignored by the new benchmarks is the basic agreement negotiation process.  TWN, citing a statement signed by 65 NGOs and issued just before the General Council decision, makes note of the “negotiations process, in which any WTO member may make any demand upon an acceding country, effectively making the negotiations 155 against one.”  For instance, Ukraine was in negotiations for months with Yemen, essentially delaying their process with unreasonable demands.    Ukraine also refused a bilateral agreement with Montenegro and derailed their membership efforts.

MediaGlobal was able to speak to Lao’s Ambassador to the UN, Saleumexay Kommasith, regarding his country’s accession to the WTO, scheduled for membership in October 2012.   Ambassador Kommasith noted that LDCs face “not just the capacity to meet requirements but the capacity to compete” as the bigger picture problem of paying the price of membership.

Despite this, Laos has made important progress as a land-locked LDC in not only meeting the old WTO requirements, but also building a series of dams for generation, and export, of hydroelectric power, thereby liberalizing a previously unexplored sector.   However, that progress has exacted its own price, namely widespread criticism of the nation’s Xayaburi Dam project.

One often-overlooked challenge faced by LDCs is in the area of intellectual property (IP) rights recognition, as Ambassador Kommasith pointed out.  Educating citizens about IP and IP rights is only part of the battle when opening new sectors of their economies.  The new benchmarks do not amend the demands of The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS).  In 1994, a WTO agreement was ratified that sets minimum standards for many forms of IP regulations rule of law worldwide.

Becoming a WTO member is certainly still a major ambition of currently acceding countries, given that 156 members are able to trade with each other in order to grow and diversify struggling economies.

Though the new benchmarks may help in some respects, they appear to be not enough of a step toward alleviating the burdens being part of the international trade system with trade between developing countries growing, the developed world’s market failures as of late, and the increasing need for concrete development efforts.