TENTH WTO MINISTERIAL CONFERENCE, NAIROBI, 2015
Briefing note: Least-developed countries
Least-developed countries (LDCs) are the poorest countries in the world. Among the 48 LDCs designated by the United Nations, 34 are WTO members and two other countries — Liberia and Afghanistan — await approval of their accession by WTO ministers in Nairobi.
Updated: November 2015
THIS EXPLANATION is designed to help the public understand developments in the WTO. While every effort has been made to ensure the contents are accurate, it does not prejudice member governments’ positions.
Although LDCs comprise about 12 per cent of the world’s population, they account for less than 2 per cent of world GDP and only about 1 per cent of global trade in goods. Their participation in global trade in services is even less.
WTO members recognize that LDCs need special treatment and assistance to achieve their trade and development objectives. WTO agreements include provisions aimed at increasing LDCs’ trade opportunities and allowing LDCs flexibility in implementing WTO rules.
The LDC group submitted a document on 3 November 2015 which presents the priorities of LDCs in the Doha Development Agenda, including suggesting binding decisions at the WTO 10th Ministerial Conference in Nairobi. The submission calls upon members to agree to the LDC proposals on special and differential treatment, preferential rules of origin, preferential treatment for services from LDCs, and cotton, among other issues.
Preferential rules of origin for LDCs
Rules of origin are the criteria used to determine where a product is made. Determining rules of origin is central in implementing trade preferences because they set out the conditions with which a product must comply in order to benefit from this preferential treatment. Determining a product’s origin is not easy when raw materials and parts used as inputs to final products criss-cross the globe for assembly at manufacturing plants scattered across multiple countries.
At their 2013 Ministerial Conference in Bali, Indonesia, WTO members adopted a Ministerial Decision on preferential rules of origin for LDCs. The Bali Decision sets out, for the first time, a set of multilaterally agreed guidelines to help make it easier for LDC exports to qualify for preferential market access. The Decision recognizes that each country granting trade preferences to LDCs has its own method of determining rules of origin, and it invites members to draw upon the elements contained in the Decision when they develop or build on their individual rules of origin arrangements applicable for LDCs.
The Bali Decision also confirms that members should notify their preferential rules of origin for LDCs to the WTO to enhance transparency, make the rules better understood, and promote an exchange of experiences as well as mainstreaming of best practices. The WTO’s Committee on Rules of Origin shall also annually review these rules of origin.
For the 2015 Nairobi Ministerial Conference, members of the LDC Group at the WTO introduced a proposal which they said would build upon the existing 2013 guidelines.
MC10 outcomes
The negotiations produced the Ministerial Decision on Preferential Rules of Origin for Least Developed Countries which was adopted in Nairobi. It contains new provisions that seek to facilitate least-developed countries’ export of goods to both developed and developing countries under unilateral preferential trade arrangements in favour of LDCs.
The Nairobi Decision builds on the 2013 Bali Ministerial Decision by providing more detailed directions on specific issues, such as methods for determining when a product qualifies as “made in an LDC”, and when inputs from other sources can be “cumulated” — or combined together — into the consideration of origin. For instance, the Decision acknowledges that "substantial transformation" can be determined in a variety of ways but contains elements which, if implemented, would make it easier for LDC producers to comply with origin requirements. In particular, it requires that origin requirements be based on the value of non-originating materials. At the same time, members applying another method may continue to do so. The Decision also stipulates that preference-granting members shall consider allowing the use of non-originating materials up to 75% of the final value of the product.
The provisions also call on preference-granting members to consider simplifying documentary and procedural requirements related to origin. In particular, LDC exporters should, as a general principle, not be required to provide a certificate of non-manipulation when their exports need to be shipped through other countries. In addition, preference-granting members should consider other measures to further streamline customs procedures, such as minimizing documentation requirements for small consignments or allowing for self-certification.
Post-Nairobi work
Each developed preference-granting member, and each developing preference-granting member in a position to implement the Decision, will inform the Committee on Rules of Origin by the end of 2016 of the measures being taken to implement the Decision. This should encourage preference-granting members to review their respective rules of origin, with a view to identifying elements which can be simplified and aligned with the Decision.
In line with the Nairobi Decision, the WTO’s Committee on Rules of Origin will annually review developments in preferential rules of origin applicable to imports from LDCs and report to the General Council. The WTO Secretariat will annually provide the Sub-Committee on LDCs with a report on the outcome of the review.
The WTO maintains a Database on Preferential Trade Arrangements (http://ptadb.wto.org) where members’ notifications and legislation on preferential rules of origin can be accessed.
More information on the WTO’s work in the area of rules of origin is available here.
LDC services waiver
At the Nairobi Ministerial Conference in December 2015, ministers extended the lifespan of a 2011 decision enabling WTO members to grant LDC services and services providers preferential access to their markets for 15 years. The “LDC Services Waiver” was extended by Nairobi Ministerial Decision T/MIN(15)/48 for an additional four years, until 31 December 2030. The waiver, first adopted at the WTO’s Eighth Ministerial Conference in 2011, releases members from their most-favoured nation obligation under the General Agreement on Trade in Services (GATS) . The objective is to enhance LDCs’ participation in world services trade.
The Nairobi Ministerial Decision also encourages discussions among members on technical assistance aimed at increasing the capacity of LDCs to participate in services trade. It also urges members who have not yet notified their preferences to the WTO’s Trade in Services Council to promptly do so and sets up a review to monitor the operation of the notified preferences.
The Nairobi decision builds upon a Ministerial Decision taken at the Ninth Ministerial Conference in Bali, Indonesia, on 3-6 December 2013, to encourage the use of — or “operationalize” — the waiver. The Bali decision was taken as initial progress to implement the LDC Services Waiver was slow.
On 21 July 2014, the LDCs submitted a collective request identifying the sectors and modes of services supply of particular interest to them. At a high-level meeting on 5 February 2015, more than 25 non-LDC members pledged to grant preferences to LDC services and services suppliers.
To date, 21 members have submitted notifications. These are: Canada; Australia; Norway; Korea; China; Hong Kong, China; Chinese Taipei; Singapore; New Zealand; Switzerland; Japan; Mexico; Turkey; the United States; India; Chile; Iceland, Brazil; and the European Union. For the current number of notifications under the LDC Services Waiver, see here.
On 2 November 2015, the LDC Group welcomed progress in members’ commitments to grant LDCs preferential treatment but cautioned that more needs to be done, in particular to address requests related to non-market access concerns. Read the report here.
Cotton negotiations
Ministers are expected to reaffirm their commitment to reform world cotton trade at the Tenth Ministerial Conference in Nairobi, under a draft text prepared in the final weeks before the meeting.
The Cotton Initiative was originally raised by Benin, Burkina Faso, Chad and Mali in 2003. Trade ministers at the 2005 Hong Kong Ministerial Conference committed to address cotton “ambitiously, expeditiously and specifically” within the agriculture negotiations, including the commitment to make large reductions in trade distorting subsidies and improve market access for cotton exports from LDCs, to deal with this quickly and for these reforms to apply “specifically” to cotton.
In 2013, the Bali Ministerial Decision on Cotton reaffirmed members’ commitment to reform policies with distorting effects on the world cotton market and to increase members’ work towards the reform.
For more information, see a separate briefing note on cotton negotiations.
Duty-free and quota-free market access for LDCs
The LDC submission of 3 November 2015 requests for a meaningful outcome on the implementation of the Hong Kong Ministerial Decision on duty-free quota-free (DFQF) market access for LDCs. The Decision on Measures in Favour of Least Developed Countries states that developed countries, and developing-country members declaring themselves in a position to do so, agree to implement DFQF market access for products originating from LDCs.
The LDC Group would like to build on the Bali Decision on DFQF market access for LDCs and intends to submit a specific proposal towards full implementation of the decision.
In September 2015, a Committee on Trade and Development meeting was convened to discuss DFQF market access for LDCs. This provided an opportunity for members to have an in-depth exchange on the issues involved.
The Committee’s annual review of steps taken by members to provide DFQF market access to LDCs took place on 13 November 2015. The current status of DFQF provided by members can be found in document WT/COMTD/W/214.
Special and differential treatment
Regular consultations are ongoing in order for members to come up with a possible outcome for consideration at the Nairobi Ministerial Conference.
DDA: Doha Development Agenda, sometimes Doha Round. Unofficial name of the Doha Work Programme on negotiations and implementation.
Special and differential treatment (S&D, SDT): Special treatment given to developing countries in WTO agreements. Can include longer periods to phase in obligations, more lenient obligations, etc.
Rules of origin: Laws, regulations and administrative procedures which determine a product’s country of origin. A decision by a customs authority on origin can determine whether a shipment falls within a quota limitation, qualifies for a tariff preference or is affected by an anti-dumping duty. These rules can vary from country to country.
Cumulation: A provision allowing producers in one country to source parts and inputs from other countries without losing the originating status of that input. Under cumulation, foreign parts and inputs are not considered as imported (non-originating) for purposes of "substantial transformation" requirements.
Substantial transformation: A requirement which ensures that a meaningful manufacturing process has taken place in order to confer originating status of a good. Typically this is translated into a percentage of value which should be added (value added approach), a comparison between the tariff classification of the final good and its components (change of tariff classification approach) and whether a specific manufacturing process took place within the country of origin (specific manufacturing or process approach).
Non-manipulation: A certificate, issued in the country of transit, which provides evidence that the goods have not been switched or modified during transit or trans-shipment.
Most-favoured nation: Most-favoured-nation treatment (GATT Article I, GATS Article II and TRIPS Article 4), the principle of not discriminating between one’s trading partners.
Waiver: Permission granted by WTO members allowing a WTO member not to comply with normal commitments. Waivers have time limits and extensions have to be justified.
Amber Box: Domestic support for agriculture that is considered to distort trade and therefore subject to reduction commitments. Technically calculated as “Aggregate Measurement of Support” (AMS).
Green Box: Domestic support for agriculture that is allowed without limits because it does not distort trade, or at most causes minimal distortion.