In 2001, during the Doha round, developed economies agreed to increase market access for products originating from Least Developed Countries (LDCs). In 2005 in Hong Kong, WTO members agreed that “developed and developing countries shall:
- Provide DFQF market access to products originating from LDCs by 2008 in a manner that ensures stability, security and predictability and
- Members facing difficulties at thios time to provide market access shall provide DFQF access for at least 97% of products originating from LDCs.
Currently, there 49 LDCs of which 35 are WTO members and 70% are located in Sub-Saharan AfricaThe 2013 Bali Package literally repeated what had already been agreed upon during the previous meetings. The Package doesn’t offer any new hopes regarding full market access for LDCs. The worry here is that the new agreement doesn’t do much to help LDCs access rich country markets because the old problems still exist.
The biggest and familiar concern is the unwillingness of developed economies to provide full market access to LDCS. The 3% excluded from DFQF consists almost 100% of exports from LDCs. The graph below shows the concentration of LDCs exports that are included in the 3% list of excluded products.
These products mainly include agricultural products such as dairy, eggs, poultry, rice, sugar, fishery, leather, cotton and apparel. Furthermore countries, most developed countries such as US, Canada, EU and Japan have declined to include these products in DFQF and there are no indications that they are going to change their minds in future. To make matters worse, these are the same products that receive the most subsidies from the government making it even hard for LDCs to gain access to these markets. According to OECD estimates, these subsidies have continued to increase in US, Japan and Canada and the decreased slightly in EU but remained above 2001 level. Agricultural subsidies grew by 6% in Canada, 2% in EU and Japan and 4% in USA.
These subsidies continue to make prices artificially high in these markets and if you include the high tariffs on LCDs exports, it becomes practically impossible for LDCs to gain market access. In many instances, rich countries have become net exports of these agricultural products. What is the effect of these subsidies and tariffs to LDCs producers? NGOs such as Oxfam have complained that “agricultural subsidies in EU are destroying lives in developing countries.” They add that subsidies encourage overproduction and export dumping. This undermines the very objects Bali agreement is supposed to achieve.
WTO’s Role: It is clear that WTO has no capability or mandate to enforce the Bali agreement. Developed economies will face no consequences if they don’t implement Bali agreements. There is no indication that developed countries will sacrifice domestic policies for a global good. Agriculture subsidies in developed countries are a major political issue that has higher priority than LCDs. Another factor is that developed countries will continue to act in way that doesn’t hurt these domestic policies. Even if they were to provide 100% DFQF to LDCs, they are likely to increase these subsidies. In this regard, Bali should try and tackle non-tariff as well tariff barriers to have a meaningful effect for LDCs. The other alternative is to try and relax “rules of origin” to enable LDCs to find alternative exports that are not part of 3%. Currently, rules of origin present huge problem as many LDCs have to import raw materials for their industries. The chart above has show that EU has the most complicated rules of origin and consequently the “Everything But Arms (EBA)” has been used less compared to US African Growth Opportunities Agreement. In conclusion, DFQF market access to rich countries will be fruitless unless it is 100% and subsidies in developed countries are reduced.