A country is classified as a least developed country (LDC) by the United Nations (UN) based on its statuses of poverty, human resource weaknesses and economic vulnerabilities. The Istanbul Programme of Action (PoA) for LDCs for the decade 2011-20 included an all-embracing objective of graduation of LDCs and their smooth transition to the rank of developing states. This graduation is viewed as an important landmark in the development march of LDCs, which they can achieve by demonstrating strong performance in key macroeconomic indicators as well as broad-based social uplift. At present, 12 LDCs including Bangladesh (out of total 47) are poised for graduation to developing country status within a few years. But these graduating LDCs are likely to face numerous challenges in integrating with the global economy because of the phasing out of benefits linked to LDC status. In this backdrop, the World Trade Organization (WTO) has prepared a report with the objective of analysing how graduation from LDC status would impact the graduating countries. Titled 'Trade Impacts of LDC Graduation', the study was released in May this year. The LDCs are accorded special treatment by the WTO, particularly with regard to enhanced market opportunities and policy flexibilities, and it is therefore important to ascertain how the loss of such treatment would affect the graduating LDCs. A key finding of the study has been the diverse economic profiles of these LDCs, with marked differences in export structure as well as utilisation of and reliance on preferential market accesses. Therefore, graduation would affect them in varying manners.
Among the 12 LDCs that are currently at different stages of graduation, 5 have been recommended by the UN for graduation over the next 5 years. They are: Vanuatu in 2020, Angola in 2021, Bhutan in 2023, Sao Tome and Principe, and Solomon Islands in 2024. Besides, Bangladesh, Lao PDR and Myanmar met the graduation criteria for the first time in 2018, and are scheduled to graduate in 2024 along with Kiribati, Nepal, Timor-Leste and Tuvalu. The decision on graduation from LDC status is taken by UN members based on the recommendations of the Committee for Development Policy (CDP) - an advisory body of the United Nations Economic and Social Council (UN-ECOSOC).
The WTO study found that the impact of graduation would vary among graduating LDCs both in scope and magnitude - whether related to participation in the WTO, market access opportunities, or development cooperation. However, the main trade-related challenges in LDC graduation may stem from a loss of preference and reduced flexibility in the implementation of WTO rules. While most of the graduating LDCs share the common feature of a narrow export-base, they considerably differ in their merchandise export structure. With regard to loss of preference margins, the most relevant developed markets for them appear to be EU, and to some extent Canada and Japan. However, for some graduating LDCs, there is a preponderance of intra-regional trade covered by regional trade agreements (RTAs) as well as bilateral ones, which would result in limited impact of graduation.
The data on preference utilisation show that the exports of graduating LDCs display a limited dependence on LDC-specific preferences. The WTO study confirms that the loss of these preferences is expected to have a limited and uneven impact on the exports of graduating LDCs. Besides, graduation is unlikely to have significant impact on their services and service-suppliers. The study found with regard to the impact on development cooperation that development partners did not consider LDC status as a key determinant for providing support. But some graduating LDCs might face rising borrowing costs with increase in their incomes. Another difference would be the loss of access to some funding for LDCs managed by the UN system.
Although graduation reflects socioeconomic progress, certain fundamental economic features of graduating LDCs would continue to exist. A majority of them face the dual challenges of possessing an extremely narrow export base alongside a thin pool of financial resources to support and sustain their development pursuits. Besides, with the exception of Bangladesh and Myanmar, most of them do not meet the economic vulnerability criteria that indicate they would remain vulnerable to economic cum environmental shocks even after graduation.
However, they share similar priorities in areas like product development, integration into value chains, market diversification, productive capacity, access to sufficient resources for building infrastructure, and adaptation to unexpected disasters. Concerted interventions would be required on all these fronts so that they can sustain their growth momentum and not fall behind on the development path. The graduating LDCs also need to engage in WTO deliberations by keeping three perspectives in mind, viz. as an LDC, as a graduated LDC, and as a developing country member of the WTO. They should take recourse to relevant WTO instruments if they face difficulties in implementing any agreement or specific provisions in any of the multilateral trade agreements governed by WTO.
The EU's 'Everything but Arms' (EBA) legislation stipulates an additional 3-year transition for a graduated LDC to receive EBA benefits following graduation. But with the exception of EU, graduation-related provisions are absent in most of the GSP schemes. China, however, provided a 3-year transition period to Samoa for benefitting from LDC-preferences following its graduation. Graduating LDCs should therefore actively engage with their trading partners for devising arrangements that could permit them to get LDC-like treatment for an appropriate period after their graduation. Exploring newer options for development cooperation has not been deemed to be urgent by the WTO study, as current trends indicate continued access to such help even during the post-graduation phase.
LDCs like Bangladesh should take utmost care so that graduation does not become a disruptive force in their development trajectory, like the current Covid-19 global pandemic has proved to be. Consequently, they should prepare appropriate strategies and action plans and engage with their development cum trading partners for ensuring smooth integration into the global economy following their graduation.
Dr Helal Uddin Ahmed is a retired Additional Secretary and former Editor of BangladeshQuarterly.
