(i) Case Study of Cambodia

One of the first countries to undertake and complete a trade integration diagnostic study was Cambodia. The study of Cambodia’s trade policy priorities and implied technical assistance requirements was compiled in-country with support from the six core agencies and drew on analysis and surveys covering the macroeconomic environment (IMF/UNDP/Asia Development Bank), trade policy reform (notably WTO accession (UNCTAD/WTO) and trade facilitation (IMF) and assessed poverty impacts as well as market access impediments. The World Bank was lead task manager. Seven sector case studies provided operational advice to improve performance and welfare gains and assess assistance activities (Royal Government of Cambodia, 2002).

The trade agenda has been formulated in tandem to the PRSP process with the full Poverty Reduction Strategy and Papers due in mid-2002. As a starting point the trade strategy was guided by an early assessment of the incidence and nature of poverty using Cambodian poverty surveys and identified the importance of reducing impediments to trade for rural household production in areas such as diversified agriculture, handicrafts and labour services. In addition, the impact of trade reform (notably tariff reductions) was assessed using household survey data.

The study surveyed behind the border constraints finding transport costs a significant deterrent, requiring both policy changes and assistance. While WTO accession is reasonably well advanced the study highlighted how demanding it can be for a small developing country to comply with the WTO requirements. Prioritised assistance in several areas were identified to build domestic capacity to assess and develop trade policy on its merits and included analysis of the administrative capacity and costs to implement WTO obligations (see Appendix 1). Improvements to customs administration and trade facilitation were highlighted as priorities for the country with both policy and assistance recommendations. Sector analysis covered agriculture (rice in particular), handicrafts, fisheries, and garments, tourism, information technology and labour services providing policy and technical assistance recommendations to increase export performance and support broad based welfare gains. Market access impediments and associated costs (notably satisfying rules of origin and product standard requirements) were highlighted with accompanying assistance recommendations (Chart 2).

The modalities of the re-launched IF have only recently been established and inevitably will take time, lesson learning and refinement. However, as can be seen (Appendix 1) the prioritised matrix of capacity building needs which evolves from the process has more easily brought together a coherent response by donor and multilateral agencies in-country to the trade agenda elaborated by the authorities, than any stand-alone initiatives could have achieved. Moreover, consensus to a broad-based demand driven approach reduces the likelihood that assistance will be biased and partial. However, this represents only the start of the process. The success of this initiative can only be determined over the medium-term taking into account the extent to which the trade agenda including the policy recommendations are meaningfully included into the country’s development process, and the extent to which bilateral and multilateral agencies continue to respond to the capacity building needs through the normal round table and consultative group processes of the key lending agencies, and bilateral donor country programmes and according to the comparative advantage, the activities of other multilateral agencies. Ultimately, success can only be defined on the basis that realised trade improvements, will promote growth and contribute to welfare gains.

b. Implementation of Global Trade Rules that Reflect the Development Dimension

Acknowledging that developing countries are at different stages of economic, financial and technological development, currently WTO agreements include a large number of provisions regarding differential and more favourable treatment of developing and least developed countries - usually referred to as “Special and Differential Treatment” (S and D treatment). In all, the Uruguay Round agreements contain 155 different provisions of S and D treatment for developing country members with additional references for the LDCs and broadly can be divided into four categories (Eglin 2001): (i) flexibility under the rules to introduce and maintain trade restrictions and subsidies; (ii) non-reciprocity (i.e. liberalisation between developed and developing countries can be asymmetric); (iii) recognised trade preferences for certain country groupings; and (iv) longer transition periods in which to implement GATT/WTO obligations⁶.

All provisions were in large part an “add-on” to agreements already fully negotiated during the Uruguay Round (Michalopoulos, 1998). The first two categories relates primarily to providing more flexibility to protect domestic markets compared to developed countries. Such preferential treatment may well enforce protectionist domestic rent-seeking groups or they may provide the flexibility to prioritise trade reform and ensure that the complementary policies are in place. Either way, the benefits of these provisions are largely determined by the national perspective (Whalley, 1999 ). With respect to the third category, the relevance of trade preferences has to a greater extent been eroded as MFN tariffs have come down. It is the last category (transition periods) that is considered the main plank of S and D treatment in the Uruguay Round. However, transition periods on their own are not enough – as can be seen from the implementation problems that many countries now face after the Uruguay Round – although long transition periods have been applied - during the intervening period little to no coherent assistance has been given to build capacity nor to facilitate an understanding of the development relevance of meeting the rules.

⁶Within these categories special provisions relate to least-developed country members and technical assistance

There is considerable dissatisfaction by both developed and developing countries with the current system of S and D treatment and implementation. The provisions as currently crafted have inevitably generated an “opt-in/opt-out” debate on meeting WTO obligations rather than on how to provide an enabling process to facilitate developing countries full participation to the multilateral trading system.

Besides longer transition periods, two other components are essential namely (i) an assessment of the cost against the availability of resources to help build capacity to implement WTO agreements;⁷ and (ii) an analysis and recommendation of appropriate policy sequencing to meet WTO commitments within the context of the country’s overall development process. Meaningful provisions to facilitate developing country inclusion to the global rule making system, requires that these three components of appropriate transition and review periods, capacity building needs, and sequencing into a country’s overall development priorities are brought together to provide a process that can be embodied into the multilateral trading rules. In terms of future negotiations without such a mechanism it will be difficult to build “credibility” to negotiate additional regulatory areas such as trade facilitation, trade in services, environment, investment or competition for fear that trade will be used to enforce standards that are sub-optimal from a national development perspective (Hoekman, 2001).

⁷WTO rules are largely designed and applied by high-income countries and although they may well be best practice principles they may be difficult for many poor countries to implement. Post-Uruguay Round research (notably Finger and Schuler, 2000 and Finger, 2001) has highlighted the significant costs of complying with various WTO obligations-particularly customs valuation, SPS and the TRIPs agreements. To meet these three Agreements the cost to restructure domestic regulations is estimated to come to $150 million.

The lack of a coherent policy approach also applies to implementation, which at present is highly fragmented. Currently implementation concerns are handled by each respective WTO committee (i.e. as with S and D treatment it is agreement specific; for example, Customs Valuation, Sanitary and Phytosanitary Standards (SPS), and intellectual property law (TRIPs)). Each committee is instructed to develop and implement a assistance programme and all providers of assistance are requested to make available information and support to the respective committees. While this may have the benefit of identifying best practice principles within each specific agreement, it runs counter to the basic notion that trade policy including implementation must be integrated and sequenced into the overall development strategy of the country. Within the WTO structure, it is highly resource intensive requiring developing country members to participate and negotiate within each committee. Moreover it does nothing to place implementation and trade issues within the context of country assistance programmes of the multilateral organisations and bilateral donors. Consequently if this approach is retained, reflecting the failure of the old IF approach, financing for trade-related assistance will remain limited and unlikely to materialise in the future.

6. AN ISSUES BASED APPROACH TO SUPPORT DEVELOPING COUNTRY PARTICIPATION AND IMPLEMENTATION OF MULTILATERAL TRADE RULES

An issues based approach would be country specific (Breckenridge, 2002; and Hoekman, 2001). Such a mechanism would allow the country in partnership with a recognised development expert or panel of experts (comprising for example another multilateral organisation, and/or bilateral partner and/or recognised individual expert) to assess, within the country’s overall development strategy, (i.e. within an economic perspective) and present, the transition requirements and sequencing for implementing agreements, given competing demands on developing country resources, and which would include an appraisal of the associated costs of implementation, taking into account the availability and need for assistance. Such an assessment would be akin to the revised Integrated Framework approach and could be informed by the national development strategies and programmes of countries and notably those undertaking PRSPs and UNDAF. The process could be housed within a revised Trade Policy Review Mechanism of the WTO or under the WTO Committee on Trade and Development. The WTO membership can then decide on the legitimacy of the requested timetable and need for assistance.

This proposal could be considered somewhat analogous to Article XVIII:B and Article XII of the GATT which provides a mechanism for developing countries to justify import restrictions and a more modified timetable of liberalisation given the economic circumstances prevailing in the country. The IMF is usually called upon to give supporting documentation and advise. To some extent it would emulate practices in the area of financial standards where countries converge on internationally agreed minimum norms at different speeds, through a process of surveillance and appropriate assistance from multilateral and bilateral donors.

Such a mechanism would provide a more enabling environment of surveillance, to engage and meet country concerns and address specific issues pertinent to each case. It would represent a process of arbitration to meet the implementation and special needs of developing countries, with dispute settlement available only as a last resort. It would be a credible mechanism to address not only existing implementation difficulties but also those associated with possible future agreements. This approach would generate stronger coherence in policy; at the country level with the implementation of WTO obligations consistent with the country’s overall development strategy; between the multilateral organisations and the WTO rule making process; and at the donor level with a closer communication between the trade and development communities.

Merits of this approach would also include addressing several of the problems associated with the current country classification system and demands for new country groupings within the WTO (Page, 2000). In particular, it would provide a process for countries to graduate from the preference schemes allocated to certain country groups as currently structured within the WTO rules. Issues pertinent to the country which reflect its current circumstances for example as a small economy, and/or land locked and/or a highly indebted country, would be assessed accordingly, thereby making the need for explicit country classifications redundant. In addition this process could allow for credit or recognition to be assessed and given to countries that have undertaken meaningful unilateral action in some areas but where more time and resources would be necessary in others. Furthermore this approach would significantly help overstretched developing country representatives at the WTO in Geneva, who are compelled to attend a huge number of committee meetings and sessions in order to negotiate waivers, preferences, extensions, special treatment and assistance by agreement with little interpretation as to the development relevance of each component.

7. CONCLUSIONS

Trade can bring significant benefits to developing countries. A one percent increase in Africa’s share of world exports is equivalent to around five times the amount provided to the region through aid and debt relief (Oxfam, 2002). It makes enormous sense to provide assistance to help countries increase their participation in the multilateral trading system. The efficacy of “aid for trade” is probably indisputable but the challenge is “how” to utilise scarce resources and deliver tangible benefits to developing countries.

Problems with the existing provision of assistance for trade-related capacity building takes place at several levels, but mainly relates to both recipients and providers promoting trade development by focusing on very limited sets of policy interventions. Assistance is rarely provided within a coherent development framework in which a trade agenda prioritises areas of action, to improve the ability of the country to increase trade and productivity growth that provides for poverty alleviation and welfare gains. Equally, mechanisms within the multilateral trade rules to assess and take account of the implementation costs, the availability and need for assistance, and the appropriate transition and sequencing of policy to meet WTO obligations to ensure that other vital development related priorities are not diverted, do not exist.

This paper argues that the effective delivery of trade-related capacity building relates specifically to establishing viable mechanisms at both of these levels: firstly in-country to promote and help formulate appropriate trade positions as well as to place trade reform in the context of the country’s overall development objectives; and secondly within the global rule making process to ensure that implementation of agreements takes into account the capacity building needs and assistance available, and is appropriately sequenced into a country’s overall development process. Many developing countries already are encountering significant problems implementing current WTO obligations. Without establishing viable mechanisms to effectively address these legitimate concerns, it makes it very difficult to provide a credible case for developing countries to engage in future negotiations to harmonise additional domestic regulatory policies and notably in areas such as trade facilitation, investment, competition, environment, and trade in services.

For trade-related capacity building to be effective has to be place in a broader policy context than hither to and preferably within the country’s overall development strategy. The modus operandi for the recently launched enhanced Integrated Framework initiative is based on this premise. The basic purpose is to more closely place a trade agenda within a country’s overall development strategy (in most cases the PRSP or UNDAF) and ensure that TRCB is coherent to the trade policy aims of the country concerned and prioritised with other development assistance needs. The trade agenda assesses issues pertinent to each country case and notably concerning the impact of trade reform on economic growth and development in the country, the complementary policies necessary to support successful trade reform and welfare gains, market access issues and an assessment (matrix) of prioritised TRCB. Importantly this assessment is undertaken in-country. The paper detailed the experience of Cambodia. Early indications suggest that bilateral donor and multilateral agencies have responded much more favourably to the prioritised matrix of TRCB than any stand-alone initiatives could have achieved (Appendix 1). The benefits of this approach is that it builds a much broader and coherent constituency in-country on the importance of trade and support for complementary policy actions. Equally bilateral and multilateral agencies can more easily place the relevance of the trade agenda within their own assistance programmes.

Reflecting that countries are at different stages of development, WTO agreements contain a large number of provisions to provide differential and more favourable treatment for developing and least developed countries. However, despite a complex set of provisions, there is considerable dissatisfaction by both developed and developing countries with the current system of S and D treatment, and including addressing the difficulties of implementing WTO agreement. Again, although the associated problems are manifold largely they reflect the fact that the provisions as currently designed are agreement specific only (counter to the basic notion that trade policy including implementation must be integrated and sequenced into the overall development strategy of the country). As such they have generated an “opt in/opt-out” syndrome to meeting WTO obligations rather than providing an enabling process to facilitate developing country inclusion to the global trade system.

This paper elaborates an issues based approach to support developing country participation and implementation to the multilateral trading system. The country would present the transition requirements and sequencing necessary to implement agreements given competing demands on developing country resources and would take into account the availability and need for additional assistance, based on the associated costs of implementation. The process would be somewhat analogous to Article XVIII:B and Article XII of the GATT, with the WTO membership deciding on the legitimacy of the request.

Such a system has considerable merits: a process of consultation and arbitration with dispute settlement only as a last option, it would provide a more enabling environment to meet country concerns; it would encourage stronger coherence in policy, both at the country and donor level; country classifications would be determined implicitly rather than explicitly according to the country circumstances and would allow a process of graduation from the current preference systems which in many respects acts as a “poverty trap” for many countries; it could also give recognition and assess credit for unilateral action; moreover it would not only tackle current implementation difficulties it would provide a “credible” mechanism and assurance to developing countries to negotiate regulatory disciplines in new areas which potentially can have considerable benefits but need to be undertaken within the context of the country’s development priorities and availability of assistance, so that they do not lead to a distortion of scarce resources, and sub-optimal outcomes.

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