The Case for 12-year transition period for graduating LDCs

Geneva, 7 Mar (D. Ravi Kanth) – The least-developed countries have upped the ante on their request at the World Trade Organization that LDC-specific support measures, including special and differential treatment and other flexibilities, must be extended for a period of 12 years for those countries graduating from the LDC category, said people familiar with the development. The United States, the European Union, and other developed countries have apparently adopted a “wait and see” approach by saying that they need to hold discussions with LDCs while underscoring the need for a “case-by-case approach”, the same approach adopted in the Doha fisheries subsidies negotiations for bringing about graduation for availing of special and differential treatment (S&DT) by developing countries, said participants, who asked not to be quoted.
Earlier, the Penang-based Third World Network urged the United Nations Committee on Development Policy to take COVID-19 impacts on LDCs into consideration at its triennial review meeting held last month for providing at least a 9-year preparatory period (in addition to the usual 3-year preparatory period) “as it is clear that the LDCs would require exceptional, longer preparatory periods under ongoing pandemic circumstances”. (See SUNS #9291 dated 23 February 2021).
At the WTO’s General Council (GC) meeting on 4 March, a large majority of developing countries, including China, India, and South Africa among others endorsed the draft GC decision (WT/GC/W/807) proposed by Chad on behalf of the least-developed countries.
The draft decision has called for an outcome, at the WTO’s 12th ministerial conference (MC12) to be held in Geneva in late November this year, on the LDCs’ request to extend all the benefits currently accruing to LDCs for a period of 12 years after an LDC moves up the ladder to become a developing country.
On behalf of the LDCs, Chad’s trade envoy to the WTO, Ambassador M. Ahmad Makaila, answered various questions raised by members, particularly the major developed countries, on why all S&DT provisions must be extended to all members and why they would prefer specific issues to be addressed “rather than adopting a broad and horizontal approach.”
Ambassador Makaila emphasized that the “main objective of the LDC graduation proposal is to provide predictability, and legal certainty for a smooth transition after the graduation process, as envisaged under relevant UN resolutions.”
Moreover, “the current system where individual Members can request specific waivers ultimately means that any smooth transition arrangement will depend on the negotiating capacity of a single graduating LDC negotiating with the whole membership and could be vetoed by any WTO Member,” Ambassador Makaila said, adding that such a process creates a difficult situation.
Therefore, according to Ambassador Makaila, “limiting the scope of the smooth transition to specific measures would imply deciding ex-ante which S&DT provision is relevant or not, even before LDCs reach the graduation stage.”
Ambassador Makaila said, “alternatively, defining the list of support measures to be extended to an individual LDC Member only when it reaches the graduation stage would be equivalent to the current situation and would not address the problems facing LDCs.”
In the continued moves for bringing about graduation for availing of special and differential treatment by developing countries, the US and other industrialized countries seem to be testing the waters as to how far they can proceed with a case-by-case approach in the fisheries subsidies negotiations, said a trade envoy, who asked not to be quoted.
Perhaps, they would try hard on this controversial case-by-case approach on the LDCs, the envoy said, adding that Chad’s persuasive replies must convince the industrialized countries not to fragment the LDCs, as it would “go against the internationally recognized need for automatic and predictable measures.”
Chad cautioned that “picking and choosing specific support measures or which LDCs deserve an extension or not would defeat the whole purpose of the proposed ministerial decision and would not improve on the status quo” and “it would also result in arbitrary and unjustifiable discrimination affecting the most vulnerable graduating Members.”
The LDC group coordinator said that “the waiver is clearly not the correct type of instrument to address this recurrent problem.”
“As mentioned under Art. IX of the Marrakesh Agreement, waivers are designed for exceptional circumstances, not for a normal step in the development process of an LDC Member,” Chad said, explaining that “the need for a smooth transition is not an exceptional situation. It is recognized by all Members of the UN and has been addressed under numerous General Assembly Resolutions.”
It urged the new GC chair Ambassador Dacio Castillo from Honduras to facilitate small group consultations with delegations so as to achieve consensus on this issue.
Chad requested the chair “to keep this item on the agenda of the General Council until this issue of critical interest to LDCs is resolved,” according to an LDC negotiator, who preferred not to be quoted.
In the draft GC decision, the LDC group listed the following measures that should be made available to countries once they graduate from the LDC category:
(1) Support measures available to least developed countries shall be extended to a least developed country Member for a period of twelve years after the entry into force of a decision of the UN General Assembly to exclude the Member from the least developed country category.
(2) The support measures covered under paragraph 1 shall include: All special and differential treatment measures and exemptions available to a least developed country under existing and future WTO Agreements, Understandings, Ministerial, General Council and other relevant Decisions; All LDC-specific technical assistance and capacity building programmes and facilities provided under the WTO system; Any other relevant measure in favour of LDCs.
(3) If a decision of the UN General Assembly to exclude a least developed country Member from the least developed country category enters into force during a transition period for LDCs provided under any existing or future WTO Agreements, Understandings, Ministerial, General Council or other relevant Decisions, the Member shall be entitled to utilize the remaining period of delay provided for LDCs.
Bangladesh, which is one of the three countries along with Laos and Myanmar that are going to be graduated in 2026, apparently cautioned that in the absence of strong support measures as well as support from WTO members, the LDCs’ transition will not be sustainable and the graduation will make no difference to the LDCs.
In a strong statement, Bangladesh’s trade envoy to the WTO, Ambassador Md. Mustafizur Rahman said, “smooth transition of graduating LDCs in the WTO is critically important for us.”
He said that “a growing number of Members have expressed support for a formal mechanism under the auspices of WTO,” emphasizing the need for a decision on the LDC request by MC12.
Ambassador Rahman suggested “small group consultations with delegations as a practical way forward and to keep this item in the agenda of the General Council until this issue is finally settled.”
Responding to the questions raised largely by the US, the EU, and other developed countries, Ambassador Rahman said “the main purpose of the draft ministerial decision is to establish a smooth transition mechanism in the WTO which provides predictability and legal certainty. This mechanism must apply indiscriminately to all LDCs.”
In response to arguments that 12 years for availing of all the benefits after graduation is too long if it comes on top of the graduation process envisaged under the United Nations Committee on Development Policy, he recalled that “the internationally recognized concept of a smooth transition is coined to help graduating LDCs to cope with a gradual removal of international support measures after graduation and is not related to the very process leading to such graduation.”
“On top of that, it is in the interest of WTO Members to ensure that no graduating country falls back in the LDC category as a result of the loss of international support measures including S&DT treatment,” Bangladesh’s trade envoy emphasized.
To questions from some members on the justification for the proposed 12 years as the length of the transition period, Ambassador Rahman said the “LDC group is willing to discuss this with our partners if the proposal in principle and the need for a formal mechanism, which will be applied to all LDCs after graduation, is accepted.”
He reiterated that “the outcome must ensure predictability so that the LDCs after graduation get sufficient time to adjust their economies to the gradual loss of support measures.”
As regards questions that “some graduated LDCs may have higher development indicators than some of the existing developing countries,” Ambassador Rahman said, “I may inform that the LDC graduation threshold is set at a higher level than the inclusion threshold, therefore, it is by definition possible that graduating LDCs have higher indicators of income, human asset, or economic vulnerability than a few other developing countries. This was done by design to avoid a situation where a graduating LDC would fall back in the LDC category.”
“This should not be argued against the graduating LDCs to benefit from a smooth transition,” Ambassador Rahman cautioned.
He said that the “UN notion of a smooth transition is not made conditional to the graduating LDCs having lower development indicators than any other non-LDC,” stressing that “there is no reason why it should be conditional in the WTO context.”
“In our view, it would rather be seen as an encouragement for other LDCs aspiring to be graduated, which is also the objective of the international community,” Ambassador Rahman said.
On suggestions by some members about the issue of the time-bound services waiver, Ambassador Rahman said “we are of the view that the services waiver should become permanent following the model of trade preferences for goods under the GSP in the Enabling Clause.”
He said, “from that context, the proposed draft ministerial decision is crafted calling on developed and developing countries to grant unilateral trade preferences to LDCs and to establish procedures for extending and gradually phasing out their preferential market access scheme.”
“Should the services waiver expire before the twelve-year period of transition for graduating LDCs, according to paragraph 3 of the draft ministerial decision, a least developed country after graduation will be entitled to benefit from the remaining period until expiration of the services waiver,” Bangladesh argued.
Bangladesh said that the LDC group has repeatedly said that “the draft decision tabled by the LDC Group doesn’t request for any new support measures, instead it urges to maintain the status quo for a certain period of time after graduation.”
It would only be in line with the UN resolutions calling for S&DT provisions in the WTO to be extended for graduating LDCs, as “it would also improve predictability and confidence of LDCs about to leave the category,” Ambassador Rahman argued.
It is hardly surprising, according to Ambassador Rahman, “that many LDCs are reluctant to graduate, considering the potentially high cost of losing support measures for LDCs at a time when the world is hit by a global pandemic.”
“In this context, at the next WTO Ministerial Conference, a decision on continuation of support measures for the graduated LDCs would send a strong signal in favour of LDCs from the entire multilateral trading system,” Ambassador Rahman argued.
At the GC meeting, 17 countries took the floor and the majority of interventions, including the African Group, the ACP (Africa, Caribbean and Pacific) group, India and South Africa among others strongly supported the LDC proposal.
Jamaica, on behalf of the ACP (Africa, Caribbean, and Pacific) group, commended “the approach being taken to promulgate the interests of LDCs within the WTO, especially in light of the impact of the COVID-19 pandemic.”
“Undoubtedly, LDCs still faced significant trade and development challenges and now, more than ever, there is an urgent need to ensure that the interests and potential of LDCs are accommodated in all our work at the WTO, especially in light of the impact of the Covid-19 pandemic and other existential and emerging challenges,” Jamaica said.
“As a group of developing countries and LDCs, we can relate to the vulnerabilities of LDCs which the Covid-19 pandemic has exacerbated,” Jamaica said, emphasizing that “LDCs were already grappling to be fully integrated into the global trading system and the pandemic could undo all the strides that would have been made over the last few years.”
The ACP group said it has taken “note of the proposal for a draft Ministerial Decision for the consideration of Members to respond to the UN General Assembly Resolutions 59/209 of 2004 and 67/221 of 2012 and introduce a comprehensive and effective smooth transition mechanism for graduating LDCs under the WTO System.”
Jamaica said that the ACP group will support “the LDCs’ submissions”, adding that it looks “forward to further productive engagement on the matter in order to support LDCs, including graduating LDCs, in their developmental aspirations and their efforts to integrate into the multilateral trading system.”
On behalf of the African Group, Mauritius said that the Group “fully supports the submission by the LDC group contained in document WT/GC/W/807 as well as the draft Ministerial decision that would allow LDCs to continue with the LDC-specific support measures and special and differential treatment and flexibilities 12 years after graduation.”
Mauritius’ trade envoy Ambassador Usha D Canabady said “the document WT/GC/W/806 – “Fact Sheet on LDC Graduation” further provides helpful information that allows Members to better understand the rationale of the draft decision.”
She said, “while the graduation of any LDC is an achievement to be celebrated, it should, however, not immediately become a brake to the further development of graduating members especially given their economic vulnerabilities and their limited negotiating capacity.”
“In fact, they should continue to be accompanied in their development process and adequately prepared to face post-graduation challenges. Unfortunately, except the Enhanced Integrated Framework (EIF), there are no formal WTO procedures to support a smooth transition for LDC graduation,” Ambassador Canabady argued.
The African Group said, “the draft Ministerial decision proposed by the LDC Group provides for a comprehensive and effective smooth transition mechanism for graduating LDCs under the WTO system.”
It said that “the African Group supports the above proposal and calls upon all members to constructively engage in discussions on the proposal with a view to its adoption at MC12.”
The US apparently asked why this issue could not be taken up at the United Nations, said an LDC negotiator, suggesting that the US had raised some questions in the last meeting.
The questions include: “(1) would the twelve-year period in the draft Decision overlap with the nine-year graduation process at the UN?; and (2) would the twelve-year extension begin after the nine-year graduation process?”
The EU, which apparently remained silent at the meeting, sought to “understand whether the LDC Group is pursuing changes to the graduation process that would address its goals. For example, has the LDC Group considered seeking a longer graduation process in the UN if a longer time frame is warranted for a graduating LDC?”
Norway apparently said that it is ready to consider the LDC group request sympathetically, underscoring the need for more discussions, the LDC negotiator said.
Published in SUNS #9300 dated 8 March 2021
– Third World Network