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Upcoming WTO MC12: Securing interests of graduating LDCs

Mustafizur Rahman | November 24, 2021 12:00:00

Seven LDCs have been recommended afresh by a UN panel for their graduation out of the group. Bangladesh is one. The green light came from February 2021 meeting of the UN Committee for Development Policy (CDP). No doubt, graduation from the world's poor-country club reflects an impressive success of this particular cohort in terms of key socioeconomic-performance indicators associated with the three set graduation criteria: per-capita Gross National Income (GNI), Human Assets Index (HAI), and Economic Vulnerability Index (EVI).

To recall, Bangladesh was first recommended for graduation at the triennial review of the CDP in 2018 when the country met all the three graduation criteria for the first time. At the next, 2021 triennial review of the CDP, Bangladesh once again met all the three landmarks in development and was recommended once more for the status upgrade. However, taking into cognisance the adverse implications of the pandemic on the economy, Bangladesh's graduation timeline was deferred by two years, to take place in 2026.

Noteworthy, out of the 12 LDCs or least-developed countries slated for graduation at the meeting of the CDP back in 2018, only seven were actually given the go for graduation at the aforesaid February 2021 CDP meeting.

While elevation of Bangladesh must be seen as a recognition of the country's commendable progress, as a UN resolution cautions, graduation is not the final destination but only an important milestone in the journey of the LDCs.This observation alludes to the challenges facing the graduated LDCs in going forward, and should inform the perspectives of the WTO members and development partners of the graduating LDCs when the issue of support towards sustainable graduation of these countries comes up for discussion. This should be taken cognisance of by graduating LDCs such as Bangladesh as well since it also alludes to the need to address embedded structural weaknesses afflicting these economies, along with the newly emerging challenges originating from graduation.

As is known, LDCs draw significant benefits as members of the WTO, thanks to international support measures (ISMs) in place specifically for this group of countries. These ISMs include special and differential (S&D) provisions (there are 183 S&D provisions in 16 WTO Agreements, of which 25 are exclusively for the LDCs). These are in the form of flexibilities in terms of commitment (e.g., under all the 16 WTO Agreements), enforcement of compliance requirements, (e.g., in case of subsidies, notification etc.) and longer transition period for implementation of obligations (e.g., in case of trade-related aspects of intellectual property rights -TRIPS - that allows production of medicines without recourse to patents and licenses) and technical assistance and aid for trade, and many others.

The countries within this bracket also benefit from the preferential market access provided by developed and developing countries under the various Generalised System of Preferences (GSP) schemes, often in the form of duty-free, quota-free market access and with relaxed rules of origin. Such preferential market access, provided either unilaterally or under different regional trading arrangements, are allowed in the WTO under the Enabling Clause (members need to notify the WTO about these preferential schemes).

However, once they graduate, LDCs will not be eligible to enjoy the benefits accruing from the LDC-specific ISMs. This will have implications in four areas: (a) Domestic Policymaking and Policy Flexibility (b) Obligations and Policy Compliance and Enforcement (c) Terms of Market Access and (d) Degree of Reciprocity in Dealing With Partners. Thus, loss of ISMs will result in shrinkage of domestic policy space and have important repercussions for dealings in the regional and global space.

As was noted above, while graduation does testify to commendable socioeconomic progress made by Bangladesh and other graduating LDCs, one will have to remember that graduation is conditional to meeting any two of three specific criteria (GNI per capita, human asset index and economic vulnerability index) or doubling the income threshold. The scores are based on average numbers and don't consider distributional aspects. Also, the HAI and EVI scores were fixed in 2012 (previously these were moving numbers) making an increasing number of LDCs eligible for graduation. The graduating countries continue to suffer from embedded structural weaknesses manifested in lack of productivity and low productive capacities, low levels of industrialisation, weak institutions, weak technological readiness, rising income inequality and uneven nature of growth and climate vulnerabilities.

Besides, these countries are graduating under the long shadow of the pandemic, with its adverse and multidimensional impacts already manifest in various macroeconomic- performance indicators, including poverty, employment, capacity utilisation and production and the GDP growth rate, as also in health, nutrition and education overcomes.

At the General Council (GC) Meeting of the WTO, LDCs have floated a proposal asking that they be allowed to enjoy LDC-specific ISMs (S&DT and preferential market access) for 12 years after an LDC has graduated from the group. In view of this, the following arguments may be put forward. As regards the argument that there is no group called 'graduating LDCs' in the WTO and hence no legal ground for extension of ISMs to 'graduating LDCs', these LDCs should argue that the proposal for support has been submitted not by 'graduated LDCs' but by the LDCs, a group recognised in the WTO which will be graduating over time depending on meeting certain eligibility criteria.

Not that the WTO does not recognise differentiation among the developing countries. For example, the WTO-SCM (subsidies and countervailing measures) Agreement (Annex VIIb) allows for derogation from obligations on grounds of per- capita income (US$1000 in 1990 terms). Also the WTO Agreement on Agriculture (AoA) offers flexibility to net-food importing developing countries (NFIDCs), also a sub-group among the developing countries.

At the least, currently graduating LDCs should be allowed to enjoy the flexibilities that are already in place, for a time-bound period (e.g., TRIPS patent waiver till 2032; GATS Services Waiver till 2030). The scores for HAI and EVI (which were previously moving averages) were fixed in 2012 (at 66 and above and 32 and below), resulting in many LDCs becoming eligible for graduation at one go.

Also, there is already a number of support measures in place within the ambit of the WTO (e.g., support under enhanced integrated framework - EIF, Technology Bank) which extends specific support to LDCs following their graduation, i.e., to graduating LDCs. It is to be noted that the EU has already offered the LDCs extension of preferential market access under EBA (everything but arms) arrangement for three years following the graduation from the group. Other countries can offer similar extension as part of support towards sustainable graduation.

To help adjust to the new post-graduation scenario and to make graduation sustainable, LDCs have floated a proposal in the WTO for continuation of the LDC-specific ISMs, for an additional 12 years following an LDC's graduation. The WTO MC12 meet (November 30-December 3, 2021 in Geneva) is an opportunity to strengthen the efforts of graduating LDCs geared towards making graduation sustainable.

The justification of LDC proposal for extension of the ISMs is backed by several arguments. In addition to the embedded structural weaknesses, there is no denying that the economies of LDCs, including the graduating ones, have been severely affected by the ongoing pandemic, as was noted already. The current group of graduating LDCs are moving towards the graduation timeline at a time when there is an ascendancy of mega regional trading blocs (with most LDCs remaining outside of those). To recall, much was promised in the decadal programme of actions in support of the LDCs, endorsed at the highest political level in Istanbul (IPOA) in 2011. These support measures were to be provided through concrete actions in the areas of trade and meaningful market access, aid, technical assistance, and in other areas.

However, the IPOA experience has been rather frustrating. The aspirations of the Doha Development Round of the WTO, adopted in 2001, also remain mostly unattained, although both the IPOA and the SDGs promised to deliver on those. LDCs want the trade ministers from WTO member-countries participating in MC12 to extend support to the proposal for extension of the ISMs for the graduating LDCs, for a time-bound period, following their graduation. Indeed, there are precedences of such extensions in the WTO (the Maldives was granted extension in the context of the TRIPS implementation when it was graduating).

No doubt that graduating LDCs will be required to design their own homework and implement those in preparation for life after graduation, with a view to making graduation sustainable. Concrete actions will need to be put in place to make the transition from predominantly preferential market access-driven competitiveness to skills- and productivity-driven competitiveness. Graduating LDCs will have to develop the value chains and put in place production networks towards strengthened regional and global integration of their economies, and undertake concrete measures to encourage and promote product and market diversification. They will need to pursue proactive trade and investment policies towards effective triangulation of trade, investment and transport-logistics connectivities. Graduating LDCs will have to get their economies ready to be part of free-trade areas (FTAs) and go for signing Comprehensive Economic Partnership Agreements (CEPAs) with countries that matter in trade terms.

As against non-reciprocity which LDCs are habituated to, these negotiations will need to be conducted on give-and-take basis and reciprocity. The graduating nations will be required to identify their offensive and defensive interests, and strengthen negotiating capacities to deal with the attendant complex issues.

In the context of the upcoming MC12, Bangladesh and other graduating LDCs will need to take into consideration their three parallel identities-as LDCs (by ensuring that they reap maximum benefits from LDC-specific ISMs in the run-up to the graduation timeline), as graduating LDCs (by mobilising support of key groups in the WTO in favour of the proposal for time-bound extensions of ISMs beyond graduation), and as future non-LDC developing countries (by taking an active interest in the ongoing discussions and negotiations in the WTO to secure their interests as future developing countries).

At the same time, graduating LDCs will need support to strengthen and complement their own efforts. In view of this, these LDCs are asking for a new set of ISMs to help make graduation sustainable. Some of the elements of this are as follows: (a) Extend S&DTs in the WTO for a time-bound period, as was noted above, in connection with the LDC submission to the WTO General Council (b) Extension of market-access preferences offered under GSP schemes on bilateral basis (EU, India, China, Japan, USA, Canada and others) or as part of regional agreements (e.g. India in SAFTA), (c) Design a Debt Relief Initiative for graduating LDCs to incentivise graduation and release funds to undertake activities in support of sustainable graduation (d) Put in place a Graduation Support Fund (e) Support the proposal floated to provide preferential access to the extent of Domestic Value Addition in exports of graduated LDCs.

At the Ministerial Conference, graduating LDCs will need to embed the concerns of the graduating countries in the ongoing negotiations keeping in the purview the perspectives as both graduating LDCs and future (non-LDC) developing countries. As regards the Agreement on Fisheries Subsidies, these countries will need to ensure that their concerns as regards safeguarding the interests of indigenous fisheries sectors and livelihood of small-scale fish folks are addressed and S&DTs are appropriately included to this effect. As regards the Agreement on Agriculture, a number of issues are being discussed: Domestic Support; Cotton Subsidies; SSMs; Public stock holding; Export Restriction; Exemption for humanitarian food purchases under World Food Programme Improved Transparency. In dealing with the agenda on the table, concerns of graduating LDCs must be given due attention.

With respect to member-led discussions, it is reckoned that graduating LDCs should be part of the discussions on e-commerce, MSMEs and Investment Facilitation and others. If they don't take part, they will not have any say in the rules that are being framed and proposed. Graduating LDCs should strongly support proposals that are being floated to make trade work for addressing the pandemic impacts. Bangladesh should support the proposal of the WTO-DG for temporary TRIPS waiver to combat health risks originating from the Covid -19 pandemic.

It is pertinent here to note that a proposal was submitted by the LDCs for inclusion in MC12 outcome document at the October 2021 meeting of the WTO. The proposal states:

(a) Unilateral trade preferences in favour of LDCs:

Members granting unilateral trade preferences to LDCs shall seek to have procedures in place to extend and gradually phase out their preferential market-access scheme over a period of six to nine years after the entry into force of a decision of the UN General Assembly to exclude a country from the least- developed countries category.

(b) Package of support measures in favour of graduated LDCs:

i. We instruct the Sub-Committee for Least-Developed Countries to prepare a package of support measures to be applied to any LDC Member from the effective date of its graduation following a UN General Assembly decision excluding that Member from the LDC category, and to report to the General Council at its first meeting in 2023.

ii. The package of support measures referred to in paragraph 2 shall apply automatically, equally and unconditionally to all graduated LDCs for a uniform period of time after their exclusion from the LDC category.

iii. Support measures covered under the package shall include: (a) WTO provisions and decisions related to special and differential treatment or exemption in favour of LDC Members (b) LDC- specific technical assistance and capacity-building facilities provided under the WTO system (c) Any other relevant measure or exemption in favour of LDCs.

iv. The LDC proposal can be agreed upon in the form of a Waiver. The Plan B is to constitute a Working Group to discuss the LDC proposal and make concrete recommendation for subsequent decision at MC13."

Early signals, however, indicate that graduating LDCs may have to bring down their expectations. The new submission's language testifies to this. Particularly, the USA is taking a hard bargaining position, arguing that a general extension of ISMs is not the best way to go, and such extensions should be country-specific and needs-based. A number of WTO members would like to see some degree of reciprocity on part of graduating LDCs.

As a key player and leading economy among the graduating LDCs, Bangladesh is likely to come under pressure in the coming days to undertake commitment, as is required of developing-country members, in case no general extension is agreed upon for the group of graduating LDCs. Members should consider the LDC proposal favourably and take concrete actions in this regard, through a waiver or at least by deferring this to a Working Group to be set up to discuss the proposal.

Notwithstanding the outcome of the MC12, Bangladesh should open up discussion with bilateral partners (e.g., EU, India, China, Canada, Japan) for extension of support under respective LDC-specific GSP schemes for a time-bound period following graduation, preferably for 6-9 years as has been proposed in the new LDC submission.

Bangladesh was included in the group of LDCs in December 1975. It looks to graduation from the group, after five decades, as a key milestone in its development journey. The concrete timeline of 2026, recommended by the CDP in its February 2021 meeting, makes it a special event also because this is the year when Bangladesh is celebrating the birth centenary of the Father of the Nation and fifty years of its independence. However, Bangladesh and other LDCs which are graduating under the long shadow of the COVID-19 pandemic will require ISMs to help them undertake their needed homework to graduate with momentum, towards sustainable graduation and to make graduation irreversible.

It is in this backdrop that the global community has a responsibility at MC12 to strengthen the ongoing efforts being pursued by graduating LDCs, by coming up with a new set of ISMs. Bangladesh will need to undertake its own needed homework and at the same time pursue the cause of extension of current ISMs and arguing for a new set of ISMs at the multilateral level, as also in discussions with key development partners for extension of preferential access on bilateral basis.

Professor Mustafizur Rahman is a distinguished fellow at the Centre for Policy Dialogue (CPD), Dhaka, Bangladesh.

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