Bleak Prospects for Least Developed Countries

Yves here. The desperation of the poorest countries is set to get worse. The sorry prospects are due to a history of neglect, such as advanced countries failing to meet even meager foreign aid commitments, as well as inconsistent breaks on trade relief.

By Anis Chowdhury, Adjunct Professor at Western Sydney University and University of New South Wales (Australia), who held senior United Nations positions in New York and Bangkok and Jomo Kwame Sundaram, a former economics professor, who was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Originally published at Inter Press Service

“The outlook for least developed countries is grim”.

Promises Unkept

Half a century ago, least developed countries (“LDCs”) were first officially recognised by a UN General Assembly resolution. It built on research, analysis and advocacy by the UN Conference on Trade and Development (UNCTAD).

The landmark 1971 declaration drew attention to least developed countries’ unique challenges and pledged support from the international community. The UN has convened four LDC conferences since, with each adopting a 10-year programme of action for national governments and ‘development partners’.

But actual progress has been disappointing, with only seven countries ‘graduating’. The list of LDCs has grown to 46 as more ‘qualify’ to ‘join’. With the fifth conference due in Doha in January 2022, some critical soul-searching is urgently needed for efforts not to disappoint yet again.

The failure of development partners to meet their commitments has been a major long-standing problem. Only 6 of 29 Organization for Economic Cooperation and Development (OECD) partners have kept their promise to give at least 0.15% of their national incomes as aid to least developed countries.

As the 1969 UN definition of official development assistance (ODA) has been compromised, the UN report unsurprisingly laments declining aid ‘concessionality’. New OECD aid reporting rules mean its numbers do not reliably measure additional sustainable development finance.

Systemic Incoherence

The UN uses three criteria – income, human assets and vulnerability – to classify LDCs. Although nominally part of the UN system, the World Bank and International Monetary Fund do not recognise least developed countries.

Instead, the Bank only uses income to classify countries, with only low-income countries eligible for concessional loans from both Bank and Fund. Thus, ‘middle-income’ LDCs – so classified due to poor human assets and/or high vulnerability – are left out.

When the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) was adopted in 1995, LDCs were given more time to comply: first, until November 2005, extended to July 2013, then July 2021, and most recently, July 2034. But such ad-hoc postponements undermine LDCs’ long-term planning.

Instead of the current ‘case-by-case’ approach, LDCs need more predictability. The grace period should be while a country remains an LDC, say, plus a further 12 years after graduation, as proposed by Chad. The 12-year ‘grace period’ should also apply to other “international support measures”, including all types of special and differential treatment.

Limited Market Access

LDCs account for only 0.13% of global trade. But despite touting trade liberalisation as necessary for development, OECD countries have not given LDCs much access to their own markets. Allowing more meaningful ‘duty-free, quota-free’ (DFQF) access is thus crucial to LDCs.

Helpful 97% DFQF access for LDCs to developed country markets was agreed to at the 2005 World Trade Organization (WTO) ministerial in Hong Kong. But most LDC exports are concentrated in a few tariff lines, such as agricultural products and textiles, still subject to constant re-negotiation.

Tariff reduction alone is no panacea, as non-tariff measures have posed barriers to LDC exports. Regulatory standards – e.g., ‘sanitary and phyto-sanitary’ requirements – and ‘Rules of Origin’ clauses limit LDC eligibility for preferences. Even when requirements are met, onerous procedures can still frustrate access.

Also, preferential arrangements – like the European Union’s ‘Everything But Arms’ initiative and the US ‘Generalised System of Preferences’ (GSP) – have often been arbitrarily implemented.

Needing frequent Congressional approval makes GSP unpredictable, ever subject to capricious new conditions. Thus, some US lawmakers are demanding that GSP renewal – which expired on 31 December 2020 – should be subject to conditions such as particular human rights, rule of law, labour or environmental regulation priorities.

Trade Concessions?
Despite the lofty 2000 Millennium Declaration, OECD countries have conceded little since. After the African walkout at the 1999 Seattle WTO ministerial, the promise of a ‘Development Round’ brought developing countries back to the negotiating table. Launched in Doha after 9/11, “with much rhetoric about… global unity”, there was little enthusiasmamong rich countries.

Still pushing developing countries to open their markets more, rich countries demanded they lower tariffs to nearly zero in sectors never previously covered by multilateral trade agreements, including agriculture and services.

Refusing to recognise tariffs as poor countries’ means to protect their farmers and ensure food security, OECD demands ignore their own heavy subsidisation of food agriculture. Also, LDC protection of their modern services – still in ‘infancy’ – is deemed necessary to withstand transnational competition.

OECD countries became more protectionist after the 2008-2009 global financial crisis, later pursuing bilateral, regional and plurilateral ‘free trade’ agreements. In December 2015, the Financial Times gleefully proclaimed “the Doha Round had finally died a merciful death” after long being comatose.

Preferential Trade?

Despite DFQF market access, ‘margins of preference’ (MoP) for LDC products have been squeezed by other developing countries’ exports. MoP refer to the difference between preferential rates for LDCs and other rates. These may refer to ‘Most Favoured Nation’ (MFN) rates available to all countries, or preferential rates available to some.

Meanwhile, tariffs have fallen with MFN liberalisation, in some cases to zero. Tariff cuts have deprived LDCs of important revenue. ‘Aid for Trade’ (A4T) – purportedly to promote exports – has never tried to compensate developing countries for lost tariff revenue.

Moreover, A4T conditionalities make them less developmental. A4T is often used for trade policy capacity building – typically focused on encouraging LDCs to open their markets more, as desired by rich countries – rather than enhancing LDCs’ productive capacities and capabilities.

Even if market barriers are reduced, most LDCs still lack the infrastructure and support services to export much more. OECD countries demand LDC trade liberalisation even before they have developed sufficient productive capacities. Hence, even ‘graduate’ LDCs fail to become internationally competitive.

International Solidarity Critical

While LDCs’ lot remains dismal, new challenges have emerged. For many LDCs, global warming poses an existential threat. The pandemic has also worsened their lot. Inadequate international fiscal support and the high costs of containing the pandemic meant 2020 saw LDCs’ worst growth since the 1980s’ lost decade.

The UN report acknowledges even the meagre progress “painstakingly achieved on several dimensions of development, notably on the fronts of poverty, hunger, education and health” has been reversed. Besides emerging challenges, the LDCs conference must also address the roots of their condition.

LDCs’ development trajectories and options are shaped by the global environment. Besides foreign trade, concessional international financing is key to LDC progress. The latest UN LDCs report proposes new “international support measures”, but recent trends suggest they are unlikely to materialise.

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  1. Felix_47

    Thank you for this post. The agricultural subsidies in the US and Europe are outrageous. Agriculture is all very poor countries have. I would propose stopping agricultural subsidies over a period of years and take the money and apply it to subsidies for LDC farmers and population control since that is the root cause of the disaster in the LDC world. Afghanistan has doubled its population over the last 20 years and it has gone from relatively self sustaining to impossible. Drought and global warming are factors but the root cause is out of control population growth.

    1. Mikel

      The way Afghanistan is always being invaded and bombed, I would just call that population replacement.

    2. drumlin woodchuckles

      In America, the ag subsidies are mainly used to further enrich the already-richest growers of petrochemical GMO sh*tcorn and sh*tsoy. A lot of this production is then dumped at subsidized undercost on victim markets, such as Mexico. That seems pretty outrageous.

      But what are the ag subsidies in EUrope used for? Who gets them? What is their purpose?

      1. drumlin woodchuckles

        ( And in all fairness, one should mention the underpayment and bad-worker-conditions subsidies for NAFTA vegetable production in Mexico, which is grown to underprice American vegetables and to be dumped on the American victim market in order to destroy as much American vegetable growing as possible. Just as Mexican avocado imports were used to exterminate the American avocado industry through underpricing. So subsidies come in all forms and work in all directions.)

        ( The answer , of course, is to abolish NAFTA by any other name, set the three North American countries free to re-protectionize their own separate National Agricultures, and ban the movement of food across the three borders as much as possible. The only exception being if one country produces something that the other countries actually can not produce, no matter how “high the price”. For example, Mexico cannot produce maple syrup. Canadamerica cannot produce certain restricted ancient culinary Mexican corns. But for beef? Milk? Tomatoes? Etc? We need a total hard ban against those things moving across any North American country’s border in any direction whatsoever).

        1. drumlin woodchuckles

          I just thought of a better example. Mexico cannot produce maple syrup. Canada cannot produce tequila. There is a basis for permitting very limited targeted trade across borders in those two particular items, for example.

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