Making the WTO Accession Work for Ethiopia: Lessons from Cambodia and Nepal
World Trade Organization (WTO) was established with the main objective of liberalizing multilateral trade, based on the belief that trade liberalization brings multiple benefits to the world population. To this end, the preamble to the Agreement Establishing the WTO (Marrakesh Agreement), provides that “[t]he Parties to this Agreement, recognizing that their relations in the field of trade and economic [endeavor] should be conducted to raise standards of living, ensure full employment and a large and steadily growing volume of real income and effective demand.”
Countries also join it, believing that a liberal trade regime will confer these benefits upon those who become members. Moreover, it is noted that the establishment of the WTO in 1995 represented a shift from a multilateral trading system based on diplomacy under the General Agreement on Tariffs and Trade (GATT) regime to one that operates under the rule of law. On the other hand, it is argued that the guidelines of accession process under Article XII of the Marrakesh Agreement are vague and making the accession process demanding and time consuming. It is also contended that the absence of clear guidelines of accession to the WTO has been allowing current Member states to impose “WTO+” obligations on acceding countries, which is more burdensome especially on least developing countries.
Nepal and Cambodia are among the poorest countries in the world and they were the first least developed countries (LDCs) to be acceded to the WTO since it was founded in 1995. Their application for membership was motivated by a desire to ensure predictable market access and become eligible for the special concessions available to LDCs under WTO rules. Moreover, the countries hoped to use accession to the WTO as an incentive for accelerating domestic economic, legal and institutional reforms to create a stable business environment and attract foreign direct investment. However, an analysis of their terms of accession confirms the general trend of exacting significant “WTO+” concessions by the developed members from acceding countries although they were agreed to facilitate and accelerate negotiations with acceding LDCs at the 2001 Launch of the Doha Round of trade negotiation.
Currently, Ethiopia is also in the process of accession to the WTO. Needless to state, WTO accession is not an end in itself but a means to achieve greater national economic development objectives. On the other hand, the process of accession and terms of commitments have been found so demanding and the potential prospects of being a member of the WTO are mixed with potential challenges. As what is accepted during the bilateral negotiation phase finally binds an acceding country, it would be wise to carefully and strategically negotiate favorable terms rather than rushing to agree to all onerous terms which compromises the national development objectives instead of bringing the anticipated benefits of membership. To this end, learning from the experiences of other countries, notably LDCs, which have passed through the same process while acceding to the WTO, would be significant.
This article examines the experiences of Cambodia and Nepal during the accession process, accession commitments, and accession implementation with a view to identifying some lessons that can be helpful to other acceding LDCs, particularly Ethiopia, devise successful strategies and avoid some of the mistakes in an effort to gain maximum benefit from their WTO membership. The article contains three parts. Part one deals with the WTO Accession process so briefly. The second part assesses the experiences of Nepal and Cambodia during their accession process, accession negotiations and accession implementation. The last part produces some lessons that can be relevant to Ethiopia and other LDCs from the experiences of Nepal and Cambodia as well as possible recommendations. The study mainly employs secondary data.
WTO ACCESSION PROCESS
The WTO rules governing accession process are provided under Article XII of the Marrakesh Agreement Establishing the World Trade Organisation. It provides very general conditions for the accession process and is only three paragraphs’ long Article which read as follows:
1. Any state or separate customs territory possessing full autonomy in its conduct of its external commercial relations and of the other matters provided for in this Agreement and the Multilateral Trade Agreements may accede to this Agreement, on the terms to be agreed between it and the WTO. Such accession shall apply to this Agreement and the Multilateral Trade Agreements annexed thereto.
2. Decisions on accession shall be taken by the Ministerial Conference. The Ministerial Conference shall approve the agreement on the terms of accession by two-thirds majority of the Members of the WTO;
3. Accession to a Plurilateral Trade Agreement shall be governed by the provisions of that Agreement.
Closely resembling Article XXXIII of the GATT 1947, upon which its wording has been based, Article XII does not give any membership criteria, 'terms to be agreed' and the procedure for negotiation. Furthermore, it does not identify any concrete steps, nor does it provide any advice when it comes to the procedures to be used for negotiating the terms of accession. The failure of Article XII to provide clear guidelines on how new members may join the WTO and “terms to be agreed” leaves the door wide open to drawn-out, decade-long, and burdensome accession experience.
Besides, WTO members are committed themselves in paragraph 42 of the Doha Ministerial Declaration (2001) to “facilitate and accelerate” the accession process of LDCs. Accordingly, it is believed that this has led to specific guidelines for the accession of LDCs, which were approved by the General Council Decision in 2002. However, as it will be discussed in this article, the two LDCs that acceded to the WTO after this Decision, i.e., Nepal and Cambodia, could not adequately benefit from that decision.
Procedure for accession to the WTO comprises four phases. In the first phase, a state or customs territory wishing to accede submits a formal written request to the WTO Director-General, who then circulates the request to all WTO members. The WTO General Council considers the request and establishes a Working Party to closer examine the application that is open to all interested WTO members.The Working Party has the responsibility of determining the terms of accession and incorporating them in a draft Protocol of Accession, which is submitted to the General Council/Ministerial Conference. The applicant then submits to the Working Party a detailed memorandum on its foreign trade regime, describing, among other things, its economy, economic policies, domestic and international trade regulations, and intellectual property policies.
In the second phase, the Working Party members submit written questions to the applicant to clarify features of its foreign trade regime. After all necessary background information has been obtained; the Working Party starts meetings to focus on issues of inconsistency between the applicant’s international and domestic trade policies and laws and the WTO rules and laws.
In the third phase of the accession process, an intensive multilateral and bilateral negotiation on the terms of accession goes on. The multilateral negotiations focus on the compliance with the WTO rules and disciplines while in bilateral negotiations each member of working party negotiates with the acceding country on the specific market access commitments. The result of the negotiations is “the accession package” consisting of the Report of Working Party, the goods and services schedules, and the accession protocol.
The final phase of accession process involves “the decision”. Once the final package, consisting of the report, protocol and lists of commitments is presented to the WTO General Council or the Ministerial Conference and if a two-thirds majority of WTO members vote in favour, the applicant is free to sign the protocol and to accede to the organization. In most cases, the country’s own parliament or legislature has to ratify the agreement before membership is complete.
Throughout this process, the burden is on the applicant to satisfy the demands of existing WTO members. Due to this apparently one-sided procedure, the following perceptions in relation to the accession process are resulted: that the WTO accession process is very costly and complex; that the WTO accession process is taking longer and longer time to complete; the price of joining the WTO now includes commitments that go beyond the Uruguay Round agreements; that the price of joining the WTO is steadily rising; and that the WTO accession process takes little account of the specific circumstances of applicant countries or their needs for special and differential treatment. The basic reason for the emergence of these perceptions is that the terms, rather than the procedures, of WTO accession are not well defined in legal terms.
Accession experiences of Cambodia and Nepal
Even though the WTO members agreed “to facilitate and accelerate negotiations with acceding LDCs” at the 2001 Launch of the Doha Round of trade negotiations, the accession process of Nepal and Cambodia was not much shorter than that of other countries mainly because of capacity constraints and lengthy process in proceeding with the negotiations. In the case of Cambodia, the accession process (from application to full membership) lasted about 10 years while Nepal’s negotiations (from re-application) took a little over eight years. In comparison, negotiations of other recently acceded countries took between seven and 15 years. Cape Verde, which until 2007 was also classified as an LDC, required eight years to join the WTO.
During preparing the complex and detailed Memoranda on the Foreign Trade Regime (MFTR), responding to Members’ multitude of questions, submitting their goods and services proposals and conducting the lengthy bilateral negotiations both countries faced serious capacity constraints.
In both cases, given the two countries’ weak human and institutional capacities as well as limited technical know-how and financial resources, the negotiation process come to be demanding and time consuming. Besides, lacking detailed studies and scientific or objective position papers on relevant topics, negotiations were mostly carried out based on the personal efforts, knowledge and information of the Nepalese and Cambodian negotiators. To this end, the Cambodia’s negotiator subsequently noted: “Insufficient knowledge, inadequate experience, limited resources and limited analytical capacities required for accession negotiations were also recurrent sources of delay.”
Both countries obtained support during the negotiation process, which was crucial to their negotiations. Far-reaching technical advice was given to Cambodian negotiators by group of experts from UNCTAD. In addition, other bilateral and multilateral donors provided some help to the government in conducting its accession negotiations. Nepal also received an important technical assistance from UNDP, including support in the preparation of negotiating documents, commissioning some background papers, building negotiating capacity and promoting public awareness of WTO membership. Nevertheless, these efforts were confronted to bear fruit due to lack of “targeted and coordinated technical assistance” to support LDCs’ accession.
In relation to involvement of non-government stakeholders in the negotiations, the two countries had different experiences. Although a series of consultations with Cambodia’s private sector and to a limited extent civil society undertaken, effective input from affected stakeholders was chiefly limited to the garment industry, which had the leading stake in the negotiations. On the other hand, several international and domestic civil society groups were actively engaged in the Nepalese accession process, providing analysis and organizing discussion forums, which in some cases enabled the Nepalese government to avoid more onerous commitments. Yet, due to the lack of a formal, institutionalized mechanism for involvement, even in the case of Nepal, the majority of stakeholders felt that they were left out from the accession process.
Accession Commitments of Cambodia And Nepal
In what follows, some instances of commitments that could be described as overly extensive will be provided. The aim of the analysis is to examine whether LDCs are accorded special and differential treatment in practice as promised in different agreements of WTO.
Tariff Bindings in Trade in Goods
Even if WTO Members had agreed to “exercise restraint in seeking concessions and commitments on trade in goods and services from acceding LDCs” in practice both Cambodia and Nepal were asked to make concessions that not only exceed beyond their capacities and stage of development but also beyond WTO requirements.
Nepal bound its tariff rates at 42% for agricultural products and 24% for industrial goods while Cambodia maintained only 28.1% for agricultural products and 17.7% for non agricultural goods. The two countries have some of the lowest average bound rates among the LDCs at 26% and 19% respectively; while Bangladesh, also LDC WTO founding member, has the highest at 163.6%. Likewise, Cambodia’s maximum duty of 60% is one of the lowest among the LDCs. In contrast, most developed countries such as the EU (264%), U.S.A (350%) and Japan (958%) have reserved the right to apply high tariffs on some products. Furthermore, Nepal and Cambodia agreed to bind the vast majority of their tariff lines (99.4% and 100% respectively). Quite the opposite, while over half of the LDCs have bound less than 50% of their tariff lines, only nine incumbent LDCs have a 100% binding coverage.
It is worth noting that although Nepal wanted to create a policy space for protecting the agricultural sector, should the need arise, by binding tariffs on agricultural products at an average of 60%, the developed Member countries, notably the United States of America, opposed such a proposal and Nepal was forced to bind its average tariff at 42% on the agricultural sector.
Therefore, the comparisons between countries’ tariff schedules underscore the extensive market access commitments the two countries made prior to and locked in during accession.
Trade in Services
In the area of services and investment, the Cambodia’s and Nepal’s accession packages are also described as overly extensive. Unprecedentedly, both countries made excessive commitments to liberalize the trade in services, opening up all of the 11 service sectors under the WTO classification, some fully and others partially and with transition periods (including 70 sub-sectors in Nepal and 74 sub-sectors in Cambodia). Cambodia and Nepal were asked to assume commitments on audio-visual and distribution services, on which none of the incumbent LDCs have undertaken any commitment, and they were highly influenced by developed countries, notably USA. On the contrary, Bangladesh, also a least-developed WTO founding Member, has only liberalized two sectors and 11 sub-sectors. Furthermore, even if Nepal was asked to open all services sector in which it has made commitment, for 100% equity participation by foreigners within a period of five years, due to the voice of stakeholders and the firm stand of its negotiators, it has succeeded in reducing foreign equity participation only up to 80%.
Under their commitments, all four modes of supply subject matter to the disciplines of the General Agreement on Trade in Services (GATS) are covered, including commercial presence (mode 3).
Trade-Related Aspects of Intellectual Property Rights (TRIPS)
In relation to TRIPS agreement, Cambodia and Nepal were required to undertake many obligations which are far beyond not only particular capacity and needs of LDCs, but also beyond the requirement of WTO. For instance, as part of its action plan for implementing the TRIPS Agreement, Cambodia agreed to join the International Convention for the Protection of New Varieties of Plants (UPOV). However, the Agreement leaves it up to Members to decide how they would like to protect plant varieties, be it through patents, a sui generis system (which does not necessarily have to be UPOV) or a combination of both (Article 27.3b). For the sake of flexibility, some countries have opted to develop their own systems feeling that UPOV did not provide sufficient flexibility to ensure protection of the rights of farmers to freely save, re-use and exchange seeds. Requiring Cambodia to accede to UPOV agreement has been considered a “plus” provision for the reason that the General Council stated that being a signatory to the Plurilateral Agreements should not be imposed as a condition to membership.
In the case of Nepal, this requirement was dropped at the last minute following intensive lobbying efforts by Nepalese civil society groups.
Special and Differential Treatment
Although the WTO Members have agreed to extend existing special & differential treatment provisions and transitional periods to all acceding LDCs, the cases of Cambodia and Nepal show that these promises ware not put into practice. For instance, LDCs are not required to undertake any reduction commitments with respect to agricultural export subsidies under the WTO Agreement on Agriculture. Nonetheless, Cambodia was forced to bind its agricultural export subsidies at zero, a commitment that no other LDC has been required to make. With reference to this specific provision, Cambodia opposed the deprivation of its ability to utilize domestic export subsidies in order to support its agricultural industry. The Working Party has been criticized for failing to grant benefits favorable to LDCs under the Agreement since much of Cambodia’s future economic development revolves around strengthening this industry.
In addition, both Cambodia and Nepal were forced to make commitments considered as excessive relative to their LDC Member status. With regard to pharmaceutical patents, the 2001 Doha Declaration on the TRIPS Agreement and Public Health states that LDC members would be allowed until January 1, 2016 to implement or apply Sections 5 and 7 of Part II of the TRIPS Agreement. In contrast, Cambodia ultimately agreed to adhere to a January 1, 2007 deadline for compliance to the entire TRIPS Agreement. Before arriving at this date, Cambodia had originally requested a transition period for TRIPS compliance that would expire in 2009.
Similarly, although the TRIPS Agreement states that LDCs are provided transition period up to 1 January 2007 for the implementation of the Agreement, Nepal was asked to implement the non-discrimination provisions (most favoured nations and national treatment) contained in the TRIPS Agreement right from the date of accession. Moreover, the developed countries did not make any reference to Declaration on TRIPS and Public Health adopted by the trade ministers at Doha in November 2001 in the Working Party Report.
Accession Implementation of Cambodia and Nepal
In the course of accession to the WTO, the two countries undertook to implement ambitious legislative reform plans. For instance, Cambodia dedicated to pass no less than 47 laws and regulations by 2007 while Nepal was to enact 10 new laws and regulations and amend 25 existing laws and regulations. However, both countries could not perform these plans at the scheduled time. Cambodia had adopted just only 24 of the 47 laws and regulations while Nepal had enacted three of the 10 new laws and adopted eight of the 25 amendments by the end of 2007. Particularly, while Nepal lacks proper regulatory mechanisms in most of the services sector so far, none of GATS-related regulations have been adopted in Cambodia.
Several factors are believed to cause the delays. Following the accession, in both countries, the impetus to implement WTO-related reforms decreased quickly partly because of outside pressure for reform declined significantly, since there is no an international monitoring mechanism and consequences for not fulfilling accession commitments. The legislation to implement WTO commitments represents only part of the Cambodia’s broader legal reform process.
Furthermore, the progress was critically impeded due to limited capacities to draft, implement and enforce the laws and regulations and set up and manage the necessary institutions. Multilateral and bilateral technical assistance activities have not been sufficiently comprehensive and effective even though they have augmented subsequent to the countries’ accession. The other challenge has been lack of coordination among the different donors. For instance, bilateral donors have tended to fund activities based on their national interests, such as to develop specific laws that were often drafted by foreign experts based on model laws from the donor countries. Also, assistance has not been uniformly distributed among beneficiaries. While assistance to other ministries remains inadequate, much of the assistance was directed to ministries of trade and finance.
Generally, the technical assistance that the two countries received after WTO membership has been inadequate. In particular, assistance has been lacking to help address supply-side constraints that prevent the countries from benefiting from WTO membership. As a result, WTO membership has not helped achieve key policy objectives related to trade, i.e. trade diversification and expansion.
What Should Ethiopia Learn from the Experiences of Cambodia and Nepal?
Nepal and Cambodia are the only two least developed countries joined the WTO through the process of accession. They faced variety of challenges in the course of their accession process, mainly due to lack of technical assistance and capacity to negotiate. They were forced to accept more onerous terms of negotiations which go beyond their specific capacities and even WTO requirements. As Ethiopia is also one of the least developed countries currently acceding to the WTO, it is logical to expect that it may face challenges that Cambodia and Nepal have already confronted. Thus, the experiences of these countries could assist Ethiopia not to repeat avoidable mistakes which would be committed in the course of its accession process and its implementation. A number of lessons that can be derived from the preceding analysis of experiences of the two LDCs regarding their accession process, commitments and implementation are produced below:
1. It has been found that the accession process of the WTO membership is challenging and prolonged due to lack of clear guidelines in Article XII of Marrakesh Agreement on “terms to be agreed between acceding country and WTO”. Nepal and Cambodia had to pass through complex steps like non-LDCs although the WTO members committed to simplify and streamline the negotiation process for LDCs. Furthermore, since the developed incumbent Members requested them strict demands in the phase of bilateral negotiations, the two countries faced challenges particularly during this stage.
2. The instances of commitments which the two countries were asked to make clearly shows the tendency of the developed member countries of the WTO in imposing WTO+ conditions on LDCs. In the course of their accession process, Nepal and Cambodia have been asked to make commitments that are not proportionate to their level of economic development, capacity, trade and financial needs. Surprisingly, their commitments are even more onerous than incumbent LDC Members and even some developing and developed country Members regardless of their commitments to exercise restraint in seeking concessions and commitments on trade in goods and services from acceding LDCs. The WTO accession process is power based and the practice deviates from the theory. In practice, the acceding countries have no role to play while setting the rules relating to accession as they are outside the system. The process is mainly one-sided.
3. Although the technical assistance that the two countries received after WTO membership has been inadequate, the one that they had received at the time of their accession process was essential to prepare the complex documentation and build capacities. Due to lack of technical assistance after their membership, the two countries faced challenges in reaping benefits from the WTO accession, particularly in realizing key policy objectives related to trade: trade diversification and expansion. Coupled with inadequate technical assistance, the absence of a monitoring mechanism and enforcement compliance deadlines has resulted in loss of momentum for implementing commitments in both countries despite their serious endeavor to effective and timely implementation of their accession obligations. Thus, it is learnt that technical assistance is vital not only at the stage of accession process but also to implement accession commitments of LDCs as well as to reap the benefits of WTO membership.
4. The commitments of the two countries show that Cambodia agreed to accept more burdensome terms while Nepal was able to negotiate relatively more favorable terms of accession. Nepal was being more successful than Cambodia because of the technical assistance it received during the accession process and chiefly due to stakeholder participation in the negotiation process. Even in the case of Nepal, the majority of stakeholders believed that they were left out of the accession process though the analyses and discussion forums offered by civil society groups allowed the Nepalese government to avoid more onerous commitments in some cases. Moreover, interaction between the government and the stakeholders has not continued since the WTO accession. Therefore, it is learned that participation of stakeholders in the LDCs’ accession is vital to bargain against the strict demands of incumbent members of the WTO.
Conclusion and recommendations
Since Ethiopia is beneficiary of the preference markets such as AGOA (African Growth Opportunity Act) and EBA (Everything but Arms), it should not hurry to join the WTO by accepting onerous commitments that may be asked by the incumbent members. Rather, it should take time to negotiate more favorable terms in line with its development objectives and the potential benefits of the WTO membership.
Particularly, Ethiopia should notagree to undertake higher levels of commitments than those made by the founding LDCs of the WTO. To reap the benefits of joining the WTO, Ethiopia should design clearly defined objectives of accession. From the experiences of Cambodia and Nepal, it has been observed that since the accession negotiation is bilateral and finally binding on acceding countries, Ethiopia is expected to design negotiation goals in relation to trade in goods, services and intellectual property rights. In the course of this process, it has to take into account its peculiar needs and should strive to secure concessions that match with its capacity. Specifically, it should:
Ensure that tariffs are bound at a higher rate than the existing applied rates because the experience of members shows that tariff can be used as an important policy instrument and this is possibility; it is also major source of revenue for countries like Ethiopia. So Ethiopia should strive to negotiate to bind its tariff rates more than that of Nepal and Cambodia. Moreover, it should apply tariff picks for sensitive sectors.
Negotiate for a long transition period to implement accession commitments; for example, ensuring that the country secures transition periods for the implementation of the TRIPS agreement (2016 in relation to patent protection for pharmaceutical products);
Make the most out of the Special and Differential Treatment arrangements; for instance, it should strive to secure the right to provide subsidy to its agriculture. Given the importance of the agricultural sector in its economy, particularly its role in human development, food security and rural development, Ethiopia should not be required to make commitments on subsidies and tariffs. It should maintain flexibility in terms of tariffs, domestic support and subsidy when the need arises. In this regard, although Cambodia fell to maintain subsidy on agriculture, Nepal has succeeded in retaining it.
Similar to Nepal and Cambodia, Ethiopia is more likely to be asked to liberalize all its services sectors including the one that the government currently considers as the key sectors such as financial, telecom, professional, distribution, education and others for foreigners’ involvement and competition. Since GATS is flexible in allowing specific commitments and progressive liberalization in line with national policy objectives and level of development of individual members, both overall and individual sectors, Ethiopia should design strategy to identify the sectors to be opened for foreign competition and those should not be, the conditions and modes of their opening up. It should negotiate smartly to make use of the flexibility under GATS and should open fewer sectors with limitations and conditions in line with its development situation and implementation capacities. In so doing, it should not repeat mistakes that Nepal and Cambodia committed by accepting what others asked unconditionally irrespective of adverse effects of such accession commitments on their national development goals.
To achieve these objectives, broader discussion on the implication of WTO membership should be held in the country. All relevant stakeholders should be consulted, including parliamentarians, business and civil society. They need to be fully informed about new rules and regulations to adopt them, adapt to them and make good use of them. Stakeholders should participate in the accession process affirmatively. The experience of Nepal indicates that it is possible to challenge the WTO members that influence the Acceding LDCs to accept commitments that are beyond their particular needs and capacity by active participation of stakeholders.
Ethiopia has to build its domestic capacity to implement accession commitments. It should request for improved technical assistance to enable itself to make use of the potential benefits of WTO membership as a tool for promoting human development, including by addressing supply-side constraints and export diversification. For instance, capacity is required to identify process, coordinate and manage the wide ranging tasks as well as to ensure WTO compliance of trade and investment laws, identification and revision of laws, regulations and practices.
It should ask the developed country members’ support to put in place a formal, institutionalized mechanism for involving all stakeholders in the process of accession and its implementation. Challenges that hinder the furthering of the country’s WTO accession can be caused by limitations in trade policy analysis, formulation, negotiation, monitoring and implementation. It has to establish a government structure that is capable of developing, reviewing and executing trade policy and law. Capacity building is utmost priority, particularly in enhancing the technical and institutional capacity of the Ministry of Trade and Industry with additional staff, training and infrastructure is absolutely important. Furthermore, programs on trade policies should be strengthened at universities.
When you subscribe to the blog, we will send you an e-mail when there are new updates on the site so you wouldn't miss them.