News Archive 2015

Debt sustainability in Sub-Saharan Africa: unraveling country-specific risks

Sub-Saharan African countries as a group showed a considerable reduction in public and external indebtedness in the early 2000s as a result of debt relief programs, higher economic growth, and improved fiscal management for some countries. More recently, however, vulnerabilities in some countries are on the rise, including a few with very rapid debt accumulation.

This paper looks at the heterogeneous experiences across Sub-Saharan African countries and the detailed dynamics that have driven changes in public debt since the global financial crisis. Borrowing to support fiscal deficits since 2009, including through domestic markets and Eurobond issuance, has driven a net increase in public debt for all countries except oil exporters benefitting from buoyant commodity prices and fragile states receiving post-2008 Highly Indebted Poor Country relief. Current account deficits and foreign direct investment inflows drove the external debt dynamics, with balance of payments problems associated with very rapid external debt accumulation in some cases.

Pockets of increasing vulnerabilities of debt financing profiles and sensitivity of debt burden indicators to macro-fiscal shocks require close monitoring. Specific risks that policy makers in Sub-Saharan Africa need to pay attention to going forward include the recent fall in commodity prices, especially oil, the slowdown in China and the sluggish recovery in Europe, dependence on non-debt creating flows, and accounting for contingent liabilities.

Introduction

The fiscal and debt landscape has changed significantly for many Sub-Saharan African (SSA) countries since the onset of the global financial crisis in 2007-2008. Record low interest rates worldwide coupled with the lowest SSA debt levels in decades after successful HIPC and MDRI debt relief has led to increased access to new sources of finance, especially non-concessional. For some countries there has been a sharp rise in indebtedness within a short time period, which if unchecked can lead to debt overhang problems similar to the ones seen in past decades among LICs and MICs. Further, volatile and changing global economic and financial conditions warrant a close monitoring of country debt situations in SSA.

This paper moves beyond the aggregate picture to look at more detailed debt profiles and dynamics of SSA countries, and aims to unravel more country-specific risks. The paper is structured as follows. Section 1 notes important data and methodology considerations. Section 2 presents an update on debt patterns in SSA countries, covering public debt and external debt separately. Section 3 reports post-global financial crisis debt dynamics, analyzing the underlying driving forces behind recent changes in debt burdens and comparing these factors with earlier periods. Section 4 discusses key vulnerabilities to debt sustainability in SSA countries, and Section 5 provides concluding remarks.


This paper is a product of the Macroeconomics and Fiscal Management Global Practice Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org

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tralac’s Daily News selection: 21 December 2015

The selection: Monday, 21 December

MC10 outcomes: The Nairobi Package

The Nairobi Package contains a series of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries. These include a commitment to abolish export subsidies for farm exports, which Director-General Roberto Azevêdo hailed as the “most significant outcome on agriculture” in the organization’s 20-year history. The other agricultural decisions cover public stockholding for food security purposes, a special safeguard mechanism for developing countries, and measures related to cotton. Decisions were also made regarding preferential treatment for least developed countries in the area of services and the criteria for determining whether exports from LDCs may benefit from trade preferences. [Download the outcome documentation]

Bridges Daily Update #5: WTO Members clinch agriculture export competition deal, weigh next steps for negotiating future

Enhanced Integrated Framework fund to help poor states misses target by Sh23bn (Daily Nation)

Profiled commentaries on MC10:

From the African press: Amina declares victory but lobbies contest deal (Daily Nation), Doha masks small Kenya wins (The Herald), Developing countries 'bite the bullet' in Nairobi (IDN), Collins Odote: 'Does Africa have any impact in global talks?' (Business Daily), China, India, South Africa still classed as developing nations (The East African), With rebasing, Kenya loses World Trade Organisation funds (The Standard)

From the Indian press: Message from Nairobi (Livemint), India eclipsed at WTO ministerial (Livemint), Government to respond to WTO’s ‘Nairobi package’ in Parliament (The Hindu), WTO steps forward and one step back for global trade regime in the domain of agriculture (The Economic Times), Nothing at Nairobi: WTO ministerial leaves India and developing countries in the lurch (Firstpost)

Profiled African statements to the MC10 plenary (dated 18 December 2015):

South Africa: Africa has defined a developmental trajectory for itself that involves moving away from its current insertion in the global trading system as a producer and exporter of primary commodities and an importer of finished goods. In this regard Africa, has defined a very clear agenda to move up the value chain and industrialise through an ambitious developmental integration programme that combines market integration alongside infrastructure development and cooperation to develop regional industrial value chains. This ambitious work programme is contained in Africa’s Agenda 2063 and can be recognized as Africa’s “mega-regional”, one constructed to meet Africa’s specific challenges and objectives. Any outcome in Nairobi or in future in the WTO therefore must in our view support this vision and certainly, at a minimum not undermine or complicate its realization. African and other Developing Countries must be offered the necessary policy space to pursue their objectives of industrialization and transformation.

Lesotho: The multilateral Trading System is of utmost importance to small countries such as Lesotho. Lesotho joined the WTO in pursuit of a promise that the multilateral trading system will integrate our nascent economy into the system. Twenty years on, we are still chasing the promise. Regrettably, all indications point to disintegration of African LDCs from the system and less so integration into the system. The WTO 2015 Report clearly illustrates this disintegration, with the greatest share of African Countries in international trade dictated by growth in regional trade. Whereas trade growth may be perceived as positive the concern is that there is no commensurate level of growth in the direction of value added trade with global trading partners. This story line is quite simple. It will take reforms of the Uruguay Round outcomes as well as realization of disciplines foreseen by DDA negotiation mandates, to truly integrate LDCs into global trade. It is for this reason that Lesotho firmly believes that commitments made by Members, in as far as the architecture of the DDA is concerned, must be honoured.

Mauritius: As part of the Development Agenda, we are in favour of an LDC package that would help the LDC’s integrate the multilateral trading system. However, such a package must be assessed from the perspective of its impact on other vulnerable developing countries so that appropriate mitigation measures may be agreed upon. Mauritius would also like to see an acceleration of the work program for small economies and for the timely implementation of measures that would support their integration into the global economy. In addition the specific situation of Small Island Developing States needs recognition at the WTO. We also require a dedicated aid for trade envelope to support their development.

Egypt: The track record of the WTO over the past twenty years has been solid, to say the least, across all those functions except one. The negotiating function has obviously not been advancing very well and reached a point today where it became the biggest institutional challenge facing the WTO. Our biggest and most important question today, is how can we make the negotiating arm of the WTO operational once more. Our determination in establishing this system envisioned the WTO as a forum for continuing negotiations aiming at serving the interest of all its Members. Today, unfortunately, the reality is that this function has not performed anywhere close to our aspirations.

Namibia: Namibia still holds the view that development oriented modalities must have substantial outcomes in strengthening and consolidating the special and differential treatment elements in each negotiating area of the Doha Work Programme, including in agriculture, NAMA and services. We hold the view that agriculture accounts for the most trade-distorted elements of the international trading system and it remains the most important component of the DDA Programme. This is where a large part of our development gains will be derived from. Agriculture should also set the level of ambition for NAMA and Services.

Access the full text of the country plenary statements here

The Nairobi Ministerial Conference: documentation

ECOWAS Authority of Heads of State and Government: final communique

The Authority reiterates its resolute commitment to the on-going integration process as a collective response to the region’s development challenges. It undertakes, with an even firmer determination, to sustain its efforts in the political, economic and institutional fields with a view to meeting all the challenges related to the deepening of this process. The Authority urges all Member States to take full ownership and ensure the implementation of all Community acts and protocols with a view to fast-tracking the integration process.

The Authority stresses the need to step up the process for the establishment of the common market. To this end, it agrees on the need to increase the volume of intra-Community trade, make the free movement of persons and goods a reality and pay particular attention to strategic sectors such as agriculture, infrastructure, energy and human capital. In this context, the Authority calls on the Commission to pursue the harmonisation of sectoral policies and take all necessary measures to support the effective implementation of programmes under these different sectors.

West Africa: USAID pledges $241m (Daily Observer)

The change of guard at Nigerian-American Chamber of Commerce (ThisDay)

Mnangagwa chides African countries for blocking PAP protocol (NewsDay)

SADC’s Pan African Parliament caucus vice-chairperson, Auxilia Mnangagwa has accused most African countries of refusing to ratify the revised Protocol of the Consultative Act for fear of losing their territorial integrity. The revised protocol, enacted by Heads of State and government last year, has so far been ratified by two countries – Mali and Mauritania – whereas it can only become operational if at least 27 countries give it the nod. Speaking to NewsDay from Senegal, where she attended the PAP meeting, Mnangagwa said it appeared most member States were afraid of losing their territorial integrity, as the Act seeks to give the Pan African Parliament legislative powers on trade and movement, environment and infrastructure.

Tanzania’s seaports and transport corridors as development opportunity for east and southern Africa (AfDB)

Continued efforts to invest in transport interconnectivity also suggest the need for institutional and regulatory reform, and enhanced infrastructure investment planning. Neither of these is without cost. The first is largely a question of political will, while the second offers policy choices, but requires that external support can be mobilized for substantial financial investments to achieve results. The extent of external financing will in turn depend on its growth prospects, and further enhancements of its national and regional institutions. Other policy objectives are to provide an environment attractive to investors and facilitate regional coordination.

EA Business Council to search for investment in Northern Corridor (The East African)

Linking Indian and Chinese maritime initiatives: towards a symbiotic existence (ORF)

If Africa builds nests, will the birds come?: comparative study on Special Economic Zones in Africa and China (UNDP)

Nepad's infrastructure focus: NEPAD Infrastructure Project Preparation Facility meeting, Donors welcome improved performance of NEPAD-IPPF in project preparation, Islamic Development Bank signs MOU with NEPAD

Zimbabwe: CZI sees capacity utilisation reaching 65% by 2017 (The Standard)

The Confederation of Zimbabwe Industries says capacity utilisation will nearly double to 65% by 2017 on the back of stakeholder partnerships. Capacity utilisation has been on the decline, reaching 34,3% this year from a peak of 57,2% in 2011 and this has been attributed to the declining economy. CZI believes that to reverse the trend, partnerships with its members, value chain stakeholders, development partners, experts, government and policy makers are key to improving capacity utilisation. According to the industry’s State of the Manufacturing Sector magazine released last week, CZI will employ several strategies to achieve this. [Download: CZI's 2015 Manufacturing Sector Survey]

Uganda’s exports drop by 4.6% (Daily Monitor)

BoU says the decline in exports was as a result of a reduction in the prices which declined by 7% as opposed to volume that increased by 2.5% in the same period. “The decline in price index is reflective of the impact of the decline in global commodity prices. Indeed, compared to the quarter ended October 2014, coffee export earnings recorded in the quarter to October 2015, decreased by $2.4m from $87.2m,” says BoU in its highlight of monetary policy report. “However, the total volume of coffee exported during the current quarter increased by 125,083 (60 kg) bags compared to 705,394 (60 kg) bags exported in the same quarter during 2014,” BoU added.

Nigeria’s foreign trade drops by N338bm in third quarter (ThisDay)

India remained the country's major export partner, accounting for N408.2bn or 17.5% of total exports in the period in review. Others are Netherlands, Spain, United Kingdom and Brazil. China was Nigeria's major source of imports which accounted for 459.4bn or 27.2%. Other are United States, Belgium, Netherlands and India.

Extract: The total value of Nigeria’s merchandise trade at the end of Q3, 2015 was ₦4,021.4bn. This was 7.8% less than the value (₦4,359.5bn, revised) recorded in the preceding quarter. This development arose from a decrease of ₦320.6bn or 12.1%, in the value of exports combined with a marginal decline of ₦17.4bn or 1.0%, in the value of imports against the levels recorded in the preceding quarter. [Download the report: National Bureau of Statistics'Latest Releases']

Trade between Canada and Africa to grow by $10bn

Improving short-term macroeconomic data for southern African policymakers (IMF)

Dr Lehohla, Statistician General of Statistics South Africa, highlighted the challenges of measuring rapid changes in the economy and pointed to the importance of improving data sources for the compilation of national accounts statistics. Mr. Bahadoor, Acting Director of Statistics Mauritius, added that users’ demand for these statistics has increased since the 2008 global financial crisis which had illustrated the size of data gaps.

Mozambique: IMF concludes 2015 Article IV Consultation

Balance of payments pressures are increasing and the exchange rate has depreciated substantially. While the overall current account is improving due to a decline in import-intensive megaproject investments (given the end of the gas exploration phase), the non-megaproject current account has continued to worsen, intensifying pressures in the foreign exchange market.

Gender Equality Strategy (World Bank)

Informed by months of consultations in 22 countries, with governments, civil society organizations, the private sector, and others, our new strategy builds on robust evidence that persistent gaps between men and women impose real and significant costs globally that can be addressed. Our new gender strategy builds on four objectives, all of them indispensable to a more equal world: reducing maternal mortality and closing remaining health and education gaps; creating more and better jobs for women and for men; closing the gender gap in ownership and control of key assets such as land, housing, technology and finance; and enhancing women’s ability to make themselves heard and direct the course of their own lives.

China-Kenya conference on agriculture cooperation: update (Daily Nation)

Five Southern Africa countries to plug sugar deficit in Kenya (The East African)

Kenya, EU set to ratify trade partnership by next December (Business Daily)

Zimbabwe: 4 judges express interest in SADC Tribunal (NewsDay)

Cote d’Ivoire Economic Update (World Bank)

French group opens first African mall (IOL)

AfDB posts new Integrated Environmental and Social Impact Assessment guidance materials

US Congressional approval of 2010 Quota and Governance Reforms: Lagarde statement (IMF)


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This post has been sourced on behalf of tralac and disseminated to enhance trade policy knowledge and debate. It is distributed to over 300 recipients across Africa and internationally, serving in the AU, RECS, national government trade departments and research and development agencies. Your feedback is most welcome. Any suggestions that our recipients might have of items for inclusion are most welcome. Richard Humphries (Email: This email address is being protected from spambots. You need JavaScript enabled to view it.; Twitter: @richardhumphri1) 

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tralac’s Daily News selection: 21 December 2015

21 Dec 2015
The selection: Monday, 21 December MC10 outcomes: The Nairobi Package The Nairobi Package contains a series of six Ministerial Decisions on agriculture, cotton and issues related to least-developed countries. These include a...
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Slowing global growth has varied effects on low-income countries

Low-income developing countries have seen weakened external conditions over the past eighteen months, but the net impact has varied significantly across these countries, according to a new study by the IMF.

While all of the 60 IMF member countries classified as low income countries have been affected by slowing global growth, the key shock has been the dramatic drop in commodity prices over the past eighteen months. The report says while commodity-dependent exporting countries (especially oil exporters) are being adversely affected, countries that are more diversified in their exports have benefited from lower prices and continue to record robust growth.

Macroeconomic Developments and Prospects in Low-Income Developing Countries: 2015, analyzes recent events and looks at the near-term prospects for this group of countries, almost all of which are eligible for concessional IMF financing.

“While the global economic environment has weakened, especially in regard to commodity prices, the effects on low-income countries has varied with differences in country-specific exposures and domestic policy conditions,” said Seán Nolan, Deputy Director of the IMF’s Strategy, Policy, and Review Department who oversaw the production of the report. “Policy responses need to be tailored to country circumstances,” Nolan emphasized.

Varied impact of falling commodity prices

Hardest hit by low commodity prices are commodity exporters, particularly oil exporters, with growth, on average, set to decline from 5.7 percent in 2014 to 3.0 percent in 2015. By contrast, countries less dependent on commodities for export revenues, and that have benefited from lower fuel bills, for example, are expected to see growth as high as 6 percent in 2014-15.

The study shows a diverse picture when looking at the net impact of commodity price movements, even within country subgroups. While countries like Cambodia, Nicaragua, and Senegal have benefited, terms-of-trade losses are disproportionally high for some large oil exporters like Nigeria, for example (Chart 1).

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Rising vulnerabilities

The report says economic vulnerabilities in low-income developing countries have increased steadily over the past two years, with some 40 percent of countries now deemed to be highly vulnerable to growth shocks, up from 25-30 percent in recent years and the highest level recorded since the global financial crisis (Chart 2).

Key drivers are the drop in commodity prices, which has led to weaker fiscal and external balances, along with the gradual erosion of policy buffers over time. Diversified exporters have fared better than commodity exporters, but vulnerabilities are still rising in some cases.

The report emphasizes the need for commodity exporters to adjust to what is expected to be an extended period of relatively low commodity prices and to strengthen fiscal and external positions over time. Where growth has been strong but vulnerabilities have been rising, early action to rebuild policy buffers is now needed.

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The report lists climate change as an additional risk for low-income developing countries in the longer term. These countries are already more vulnerable to natural disasters than are countries at higher income levels. They are also projected to suffer more over time from the effects of global warming, given their geographic location (typically in already hot climates) and the large share of GDP accounted for by the weather-sensitive agricultural sector.

“Low income developing countries will need significant external financial support for national programs to adapt to climate change – otherwise, attaining ambitious development objectives will be very difficult over the longer term,” said Seán Nolan.

Capital inflows continue

Capital inflows to low-income developing countries have increased sharply in recent years, the report says, especially portfolio inflows to frontier-market economies (Chart 3). These frontier markets have typically liberalized their capital accounts more quickly than other low-income countries, and many are now as open as emerging market economies.

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Capital inflows have boosted domestic demand, with the use of external financing in consumption versus investment depending on national policy choices. In a few cases, the higher external financing of domestic spending has coincided with reduced public saving and increased public consumption.

Pointing to the tightening of financing conditions, the report sounds a cautionary message on tapping portfolio inflows. “Countries that are increasing their reliance on access to external funding thus face an additional risk – shifts in the external environment – and need to place a high premium on maintaining solid economic fundamentals, including strong public debt management capacity,” the study says.

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WTO Members clinch agriculture export competition deal, weigh next steps for negotiating future

Trade ministers clinched a deal to eliminate agricultural export subsidies this Saturday, following a five-day meet in the Kenyan capital of Nairobi. The WTO Ministerial Conference, the biennial highest decision-making gathering of the multilateral trade system, also agreed a series of other deliverables on farm trade and least developed country issues, while ultimately leaving open the question of how the WTO’s negotiating arm will evolve.

Deliberations during the week of 15-19 December touched upon an array of intricate matters and politically thorny dilemmas, such that decisions adopted on Saturday make it clear that the “post-Nairobi” landscape for the global trade body both as an institution and a negotiating forum is now set to look markedly different than the one preceding the ministerial. The result has consequently drawn a mixed preliminary welcome from trade officials and observers alike, as they work to parse through the various outcomes.

The agreement disciplining agricultural export competition, for example, has been lauded as “historic” by trade officials – an achievement that eluded the trade system for 60 years since the GATT imposed similar curbs on export subsidies for industrial goods. Unsurprisingly deep divisions on the subject among members persisted up to the final hours of the ministerial, requiring round-the-clock negotiations.

On agricultural matters, despite fundamental differences, members managed to bridge their divides – and achieved a result that is likely to have significant ramifications for farm trade and for least developed countries’ participation in global trade flows.

Even so, the text of the ministerial declaration shows that members were unable to overcome profound differences in other key areas, with the document explicitly stating that WTO members remain at odds over the reaffirmation of the Doha Round and subsequent ministerial declarations and decisions.

“We recognize that many Members reaffirm the Doha Development Agenda, and the Declarations and Decisions adopted at Doha and at the Ministerial Conferences held since then, and reaffirm their full commitment to conclude the DDA on that basis. Other Members do not reaffirm the Doha mandates, as they believe new approaches are necessary to achieve meaningful outcomes in multilateral negotiations. Members have different views on how to address the negotiations,” the declaration reads.

In effectively acknowledging the opposing viewpoints without reconciling them – agreeing to disagree – the declaration has shed little light on what lies ahead for the negotiating function of the global trade body, which has long struggled to move out of the shadow cast by the continued lack of resolution in the Doha Round trade talks. The drafting of Part 3 in the ministerial declaration – on the WTO’s future – now presents both a challenge and an opportunity for members, without yet clarity on how to go about them.

“We have to be clear-sighted of the situation we’re in today,” WTO Director-General Roberto Azevêdo told members in the closing ceremony, noting specifically the unresolved divide among members. “We have to face up to this problem. We have to address it.”

The ministerial declaration does note some areas of potential agreement, not least in the “strong commitment” that all members have to continue negotiating the Doha Round issues – while at the same time noting that members do not share the same view of whether they want to continue this work using the existing Doha structure.

The declaration specifically refers to agriculture – domestic support, market access, and export competition – as well as the other two core issues of industrial market access and services as issues where members aim to advance work. It also mentions rules – an area that saw much negotiation but no separate substantive decisions at this ministerial – as well as development and the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement issues.

The declaration states that this “future agenda” should include work on the areas that did see substantive decisions at this ministerial, and that future work will keep development “at its core” with special and differential treatment “integral” to it.

Officials have now been instructed to “find ways to advance negotiations,” with regular reports from the Director-General to the General Council, which is the WTO’s highest-making decision body under the ministerial conference.

One question that was raised in the broader discussions on Doha was how the ministerial declaration would treat the concerns raised from some of the organisation’s newer members, who had undertaken significant market access commitments when joining on the understanding that they would not be required to take additional commitments as a result of the Doha talks, and that the other members were in on-going negotiations aimed at arriving at corresponding levels.

Sources confirmed that this had been one of the key issues under debate in the Ministerial’s final days, raised by members such as China, as well as very recently acceded members such as Russia, Saudi Arabia, Chinese Taipei, and Oman.

The ministerial declaration ultimately features a recognition of the “special situation” faced by “Article XII” members under the WTO Agreement, given these market access commitments, noting that their situation “shall be taken into account” in the negotiations.

Regarding how to engage the WTO in addressing so-called new issues – a critical demand from the almost entire membership, even if most vocally by the US and EU – the document also notes a continued disagreement, while leaving enough ambiguity in its drafting to allow a potential range of options.

“While we concur that officials should prioritize work where results have not yet been achieved, some wish to identify and discuss other issues for negotiation; others do not. Any decision to launch negotiations multilaterally on such issues would need to be agreed by all Members,” the declaration reads.

Negotiating arm

Hours before the ministerial began on 15 December, conference chair Amina Mohamed, the Kenyan Cabinet Secretary for Foreign Affairs and Trade, had warned that members essentially faced two choices over the coming days that would set the tone for the WTO’s future.

“If we have a successful ministerial it will change because we will have invigorated it, we will have renewed the organisation, hopefully modernised it,” said Mohamed to reporters at the time.

She warned, however, that a far different scenario could await the global trade body should the Nairobi talks fail. “If we don’t agree then we will see a change, because obviously what the membership will be saying collectively is that the negotiating function of the WTO is broken.”

In the months – and years – ahead, questions will likely continue to abound as to what future awaits the various modalities of WTO’s negotiating arm, particularly its multilateral mode when compared to the results seen in other major global governance efforts this past year.

The adoption of the UN Sustainable Development Goals (SDGs) for 2030, as well as the successful adoption of a universal climate deal in Paris earlier this month, had drawn many comparisons to the WTO multilateral negotiations under the Doha Round in the weeks and days ahead of the conference, with officials urging the global trade body’s members to draw inspiration from those processes and results.

Digital economy

One of the notable substantive achievements from this ministerial was the announcement of the conclusion of “plurilateral” talks among 53 WTO members to expand the product coverage of the Information Technology Agreement (ITA), a critical mass negotiation furthered in parallel to Doha Round talks since its launch outside the formal framework of the WTO ITA Committee three years ago.

The completed ITA-II has been heralded for being the WTO’s first tariff-cutting deal since its establishment 20 years ago, with the tariff cuts agreed by the participants set to be extended to the full membership of the global trade body.

An achievement of great significance, the ITA-II involves products currently valued at US$1.3 trillion annually and responds to the continued evolution of the global digital economy. For many, this model of Most-Favoured Nation (MFN)-based, open plurilateralism, represented by the ITA-II may become an increasingly more common alternative to multilateral trade agreements under the WTO.

WTO members also extended their moratorium prohibiting customs duties on electronic transmissions until the next ministerial conference in 2017, along with renewing a related work programme. The organisation’s General Council is mandated to report in December 2016 and July 2017 on related issues arising in WTO bodies where the work programme is being implemented.

Regional trade agreements

The continued proliferation of regional trade agreements (RTAs) has been another area of both interest and concern for WTO members, with the ministerial declaration including language reaffirming “the need to ensure that [RTAs] remain complementary to, not a substitute for, the multilateral trading system.”

In this context, ministers have agreed that WTO members should hold discussions on the “systemic implications” of such trade deals under the Committee on Regional Trade Agreements, citing the goals of transparency and greater understanding. They have also agreed to work toward the long-standing goal of turning the existing provisional Transparency Mechanism within the WTO into a permanent one, in line with instructions from a General Council decision nearly a decade ago, without setting a deadline for this goal.

The language draws from a proposal made by Brazil on the subject in the context of the WTO’s rules negotiations, though it drops the language that the South American economy had suggested for reporting such outcomes to the General Council for guidance and directions for action within a year’s time, with a view to finishing this effort by the next ministerial conference. The decision puts in place a more active process that may help members to engage in dialogue within the organisation on the relationship of the evolving global trade system with the WTO’s role.

Agriculture: four new decisions

The Nairobi package includes new ministerial decisions covering a special safeguard mechanism for developing countries; a decision on export subsidies and other “export competition” elements; a decision on cotton; public stockholding for food security purposes.

The decisions, which are legally binding, represent the “most significant outcome on agriculture” seen in the WTO’s 20-year history, Azevêdo told members.

Special safeguard mechanism

The G-33 group assembling a set of developing countries, that includes China, India, and Indonesia as well as many smaller economies, had argued in favour of a special safeguard mechanism that will allow developing countries to raise tariffs temporarily to respond to sudden import surges and price depressions. However, agricultural exporting countries such as Australia, Brazil, and the US had contested against a safeguard in the context of a broader deal to cut tariffs, fearing that otherwise the higher duties could serve to restrict access that exporters have at present to these countries’ markets.

The new decision states that developing countries will “have the right to have recourse” to a special safeguard mechanism “as envisaged under paragraph 7 of the Hong Kong Ministerial Declaration.” This paragraph anticipates that developing countries will have the right to “a Special Safeguard Mechanism based on import quantity and price triggers.”

It also says that WTO members will pursue negotiations on a special safeguard mechanism for developing country members in dedicated negotiating sessions of the WTO agriculture committee.

Export competition

This decision groups together export subsidies with other types of export support instruments that can distort competition: export credits, export credit guarantees and other types of export financing; exporting state trading enterprises; and food aid.

When the Doha talks were launched, the EU insisted that these other types of arrangements also be disciplined in parallel to efforts to phase out and ultimately eliminate export subsidies. The EU subsidised exports at very high levels – reaching €10 billion in 2000 – and since almost totally curbed.

Historically, the US has been the main provider of export credits and food aid, while Canada, New Zealand and Australia have operated exporting state trading enterprises, some of which have since been privatised.

While the EU has discontinued export subsidies for most products, Switzerland, Norway, and Canada still notify support to the WTO, and some developing countries such as India or Turkey also provide this type of support but have not formally notified it to the trade body.

Although the Hong Kong ministerial declaration has said that developing countries should be allowed to provide Article 9.4 export subsidies – related mostly to marketing and internal transportation – for five years after export subsidies are eliminated, the legal authority for doing so under the Agreement on Agriculture has already expired.

Export subsidies

Under the decision, developed countries will immediately eliminate their remaining agricultural export subsidies. These types of payments have long been seen as particularly trade-distorting, and already prohibited for manufactured goods. At the Hong Kong ministerial conference in 2005, members agreed that these payments would be eliminated by 2013, although the wider stalemate on the Doha agenda meant that this deadline was missed.

A footnote provides an exception until 2020 for developed countries that provide these subsidies on “processed products, dairy products, and swine meat,” to accommodate countries such as Switzerland and Canada that still use this type of support. The exception nonetheless would require the countries concerned not to export these products to least developed countries.

Developing countries must also eliminate their export subsidies by the end of 2018. Again, a footnote provides an exception until 2022 for some countries which have notified their support to the WTO.

An extended 2023 deadline is also provided for developing countries to use export subsidies for transport and marketing, which were originally covered under article 9.4 of the Agreement on Agriculture. The arrangement is in keeping with other WTO clauses providing “special and differential treatment” to developing countries – often in the form of longer implementation periods for commitments. Least developed countries and net food importing developing countries will be allowed to do so until 2030.

Special arrangements are made for export subsidies on cotton. Developed countries would have to immediately implement their export subsidy commitments for this product, and developing countries would have until January 2017 to do so. More ambitious disciplines on cotton have long been a special demand of West African cotton-producing countries in the C-4 – Benin, Burkina Faso, Chad, and Mali.

Export credits, export credit guarantees, or insurance programmes

The decision says that maximum credit repayment periods for developed countries would be eighteen months. The EU, Brazil, and other members had proposed nine month repayment periods under certain conditions. Although current US legislation allows repayment periods of up to 24 months, actual practice is believed to be 18 months.

Developing countries would initially also be allowed to extend credit for longer periods of up to 36 months, although this would be gradually reduced to 18 months over the course of a four-year implementation period.

Exporting state trading enterprises

The decision states that WTO members must ensure that exporting state trading enterprises do not operate in a manner that circumvents any other disciplines. This could be interpreted as meaning that these enterprises must not be allowed to operate in a way that effectively subsidises exports once the relevant deadlines in the export subsidy section of the text have expired.

A “best endeavours” clause would also commit members to making their best efforts to ensure that any export monopoly powers exerted by these bodies do not distort trade, the text says.

Food aid

New language on food aid would commit WTO members to refrain from providing in-kind food aid where this might cause an adverse effect on local or regional production of the same or substitute products. The decision would also require them to ensure that international food aid does not unduly impact established, functioning commercial markets of agricultural commodities.

The decision would also establish new commitments affecting the extent to which countries would be allowed to “monetise” food aid – meaning for donors to sell in-kind food in recipient countries so as to raise funds for development projects.

The text would require WTO members to monetise international food aid “only where there is a demonstrable need” for transport purposes, or where monetisation is used to redress food deficit requirements or “insufficient agricultural production situations” which give rise to hunger and malnutrition in least developed and net food-importing countries. Other requirements are also included in the decision - such as for a market analysis to take place before monetisation occurs.

Public stockholding

On public stockholding, the G-33 group of developing countries has argued that current farm subsidy rules unfairly constrain their ability to purchase food at administered prices as part of their public programmes for food security purposes. The 2013 Bali ministerial saw WTO members agree not to challenge these schemes under the trade body’s dispute settlement process, and members agreed a year later that this arrangement would apply until a permanent solution is reached.

The G-33 have argued that price inflation over the last two decades have eroded the degree of flexibility they have to provide farm subsidies, even if purchases are made at administered prices that are below the level of international market prices.

The new text says that WTO members note the Bali decision, and also reaffirm a November 2014 decision extending the arrangement until a permanent solution is reached.

Saturday’s agreement also says that negotiations will be held on the subject in dedicated negotiating sessions of the WTO’s agriculture committee – but that these will be distinct from Doha negotiations.

Cotton

African countries have long sought stricter disciplines on cotton, and in particular in the area of domestic support. The Hong Kong ministerial declaration, agreed in 2005, committed members to finding an “expeditious” solution to the problems facing the sector. Washington has long argued that policies in “emerging” developing countries should also be addressed by any resolution to this issue, as domestic support levels have risen in recent years.

With no negotiations on agricultural domestic support at Nairobi, there is little in this area on cotton in the final conference decision. However the text does include measures on market access and – as noted above – also on export competition.

The new agreement says that developed countries shall grant “to the extent provided for in their respective preferential trade arrangements” duty‑free and quota‑free market access for least developed country cotton exports, from 1 January 2016 onwards.

Developing countries “declaring themselves in a position to do so” would undertake the same commitment – and a footnote clarifies that this would include China, both for general market access commitments and also in their preferential trade agreements. In the past, the US has often argued that China ought to undertake market access commitments as part of a broader sectoral agreement in this area. The most recent proposal from the C-4 group would also have included separate market access commitments for developing countries, including China.

An annexed product list would also specify which other cotton-related products would benefit from similar market access treatment.

Substantive advances for LDC issues

Given the complex and political nature of issues at stake for the WTO’s poorest members, observers suggested that the conference did mark an important step forward within the multilateral trading system by adopting a set of binding multilateral provisions on preferential rules of origin for least developed countries (LDCs) as well as a new decision on the services waiver.

LDCs had repeatedly voiced concerns that these preferential rules of origin are often too restrictive and impose onerous compliance burdens, making it difficult for them to take full advantage of existing preferential margins.

The decision adopted in Nairobi now sets a timeframe for preference-granting members to undertake the commitments contained in the decision by 31 December 2016.

Regarding the value addition threshold, the document allows for the use of materials not originating from an LDC to make up to 75 percent of the final value of a product for it to qualify for preferential treatment. Some observers consider, however, that 75 percent non-originating material is in fact still prohibitive, given modern manufacturing methods based on global value chains which require in some cases only very little domestic content.

Discussions on the services waiver for LDCs – which had proved difficult on certain technical aspects early in the morning on Friday – eventually led to a compromise on the draft text proposed by Rwandan Minister of Trade and Industry François Kanimba, who was facilitating those talks.

The draft text adopted in Nairobi provides for an extension of the existing services waiver until 31 December 2030. LDCs had argued that three years had essentially been lost between the waiver’s adoption in 2011 and when the first notifications were submitted this year. These countries argued that an extension of the duration of the waiver was therefore needed. Australia, the US, and the EU had reportedly raised some reluctance on this aspect but indicated they would not oppose the text.

Another key feature of the text concerns the encouragement for both developed and developing members “in a position to do so,” that have not notified preferences, “to redouble efforts” to notify them. At press time, 21 WTO members had submitted their notifications. The text further specifies that these preferences should have “commercial value” and “promote economic benefits.”

In the lead up to the conference, some LDCs had expressed dissatisfaction regarding the scope of the notifications made so far over the past months to “operationalise” the services waiver, in line with their collective request tabled last year. Some were of the view that the notifications were not “commercially meaningful” enough, and have therefore tried to deepen the coverage of the notifications, while also attempting to change certain regulations to work more in their favour.

However, one source mentioned that given the political sensitivities around issues such as mutual recognition, the reduction of administrative visa procedures and fees, work and residence permits, and licenses for LDC services suppliers and independent professionals, these aspects were unlikely to be addressed.

“Members shall give special priority to addressing regulatory barriers of interest to LDCs,” reads the decision.

The text also contains provisions related to the provision of technical assistance and initiation of a process to review the operation of notified preferences.

Special and differential treatment

Discussions on special and differential treatment (S&DT) continued to prove divisive on Friday, before ultimately collapsing. The proponents met in the morning to “essentially restate their positions and even backslide,” said one developed country trade delegate.

After some discussions on the nature of the disagreements between the 28-nation EU and the G-90 – which is comprised of the African, LDC, and African, Caribbean and Pacific (ACP) Groups – the United States suggested focusing on the Monitoring Mechanism (MM), as it could provide a forum for monitoring S&D issues and improve beneficiaries’ ability to utilise S&D provisions.

Other developed countries reportedly said that the MM could indeed be a good platform to identify and discuss problems. However some developing countries raised the point that MM does not have a negotiating function.

One particular issue that emerged strongly in the discussions relates to the scope of the beneficiaries of the proposals put forward by the G-90. Some countries argued that some of the flexibilities being sought could only be provided to LDCs, while others were of the view that any S&DT outcome should apply to all developing countries, unless they were LDC-specific proposals.

Reportedly, the G-90 was said to have perceived some of the proposals as not conducive of their own interests, notably with regard to industrialisation and investment.

Various consultations took place on the subject, however issues related to balance of payments, sanitary and phytosanitary measures, technical barriers to trade, safeguards, LDC-specific issues and also tariff negotiations have been cited as being particularly problematic.

The revised text presented by the facilitator in this issue, WTO Deputy-Director General Yonov Frederick Agah, was rejected by the G-90 and LDCs as it did not reflect any consensus, said one source close to the process. Instead, on Saturday morning, the G-90 submitted a draft decision which included text on future work on the issue, instructing the Committee on Trade and Development in Special Session (CTD SS) to continue to negotiate on the basis of specific proposals tabled by the G-90 last November with a view to achieving agreement on all proposals by 31 July 2016.

An outcome on S&DT could not be secured as members had “opposing interests,” explained Azevêdo.

“S&DT is an area that is horizontal, crossing across all WTO agreements. These are also difficult negotiations, as it is about the flexibilities in the agreement,” he said.

However, one delegate suggested that if these issues could not be resolved in the past several months, it is unrealistic to think there could be a solution by that deadline, said a delegate.

Sources indicate that on early Saturday morning, one S&D proposal which had been identified earlier by Agah as a “doable” and related to Trade-Related Investment Measures was put forward as a standalone item outside the LDC package. However, this was rejected by South Africa, Cameroon, Jamaica, Uganda, and Tanzania, sources said.

According to Azevêdo, there were some proposals that could have been agreed to but the proponents preferred to maintain a more ambitious set of proposals for future harvest.

Trade remedies, fisheries talks flounder

Though agriculture and LDC issues did see substantive outcomes in Nairobi, the negotiations to advance some proposed deliverables from the WTO’s “rules” talks failed to bear fruit, despite a series of informal, bilateral, and small group meetings over the week.

A chair’s text tabled early Friday, which brought together various elements of these proposals into a possible draft ministerial decision on anti-dumping and countervailing measures and another on fisheries subsidies disciplines, received pushback on a number of fronts.

The first draft decision would have instructed the WTO Committee on Anti-Dumping Practices, through its Working Group on Implementation, to study and make recommendations to report to the General Council on a specific list of topics. This would be done in order to ensure “maximum possible” predictability and objectivity in implementing the relevant provisions in the Anti-Dumping (AD) Agreement. The Committee on Subsidies and Countervailing Measures would also have been instructed to study these outcomes to determine their relevance and report conclusions to the General Council.

Some industry voices have cautioned that the proliferating use of trade remedies could threaten expansion or foreign investment in growing and salient industries, pointing to areas such as clean energy technologies. Other experts in Nairobi, however, considered that the steps proposed chair’s text would not have been a high-ambition outcome.

The document was panned by several nations, including Russia among others, who had also circulated its own revised draft decision on transparency issues in anti-dumping and countervailing measures on Friday morning. Moscow reportedly expressed disappointment that the chair’s text did not explicitly include a reference to the Agreement on Subsidies and Countervailing Measures (SCM) in the instructions paragraph on implementation recommendations, as featured in its proposal.

The second draft decision on fisheries subsidies would have decided to work towards completing negotiations within specific timeframe – potentially two years, though this was bracketed – for prohibitions on subsidies linked to illegal, unreported, or unregulated (IUU) fishing and those provided to any vessel or fishing activity “negatively affecting fish stocks that are in an overfished condition.”

This language was reportedly resisted in the final stretch on Friday by the 28-nation EU. The chair’s document would also have had members commit to a best endeavour standstill on introducing new fisheries subsidies contributing to overcapacity and overfishing in so far as these undermine the development livelihood and food security prospects of developing countries – a move rejected by China, given its estimated sizeable domestic support in this area. 

The draft decision also included additional fisheries subsidy programmes notifications commitments under the SCM Agreement with guidance on format outlined in an annex, taking into account each members’ resources and technical capacity. China and India reportedly struck out against the supplementary notifications on Friday afternoon, reiterating concerns these did not constitute a development outcome, due to the potential additional burden it could imposed on poorer countries.

The failure to clinch a deal on fisheries subsidies in particular met with mixed reaction among experts. Some considered that the chair’s text would ultimately have been relatively weak, while others expressed disappointment at the fallout, given its references and potential contribution to the global community’s new sustainable development agenda. However, group of 28 WTO members did release a ministerial statement on fisheries subsidies on Thursday pledging to reinvigorate WTO work in order to achieve ambitious and effective disciplines on fisheries subsidies, a move welcomed by ocean conservation groups.

Still others said that a concrete mandate for carrying multilateral work forward on fisheries subsidies is now found through a relevant SDG, although some also pointed to the fisheries subsidies disciplines inked as part of the recent 12-nation Trans-Pacific Partnership (TPP) as an example of ongoing efforts at the regional level.

Price of inaction

The Nairobi ministerial ultimately yielded some substantive decisions for negotiators to applaud – with China, for instance declaring “this is a big, big victory. This conference will be remembered for its historic contribution to development.” In addition, it also saw a concluded ITA-II, higher participation and a new negotiating approach from developing and least developed economies, the accession of Liberia and Afghanistan and expressions of interest from Somalia and Iran.

However, the road ahead for the WTO may still be a rocky one, though also with potential opportunities for creativity if members so choose.

“Members must decide – the world must decide – about the future of this organisation,” said WTO Director-General Roberto Azevêdo during the closing moments of the ministerial.

“The world must decide what path this organisation must take. Inaction itself is a decision and I believe the price of inaction is too high,” he added, noting that the year ahead leaves them with a “very serious task.”

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