According to a ‘Review of trade preference schemes for the world’s poorest countries’, published by the International Centre for Trade and Sustainable Development (ICTSD) in October 2012, the EU, together with Canada and Japan, has GSP schemes for LDCs that are ‘quite comprehensive’, but there is a major limitation with the USA’s ‘less extensive coverage for imports of textiles and clothing’. The report describes the country and product coverage of each country’s scheme, the limitations of each, and gives a rough estimate of the value and the possible effects of concluding the Doha Development Round. It concludes with suggestions for potential improvements.
Despite its title, the ICTSD report does not deal with all the trade preference schemes for the world’s poorest countries. Instead, it focuses just on LDCs, even though the group does not include all low-income states (LICs) but does include some that are middle-income.
The paper provides an up-to-date review of the main provisions of the schemes provided for LDCs by seven states: the four major OECD countries plus China, India and South Korea. It finds that the three developing countries tend to offer preferences ‘in areas where they have relatively few resources and where imports are needed for their own production and trade’ but are becoming increasingly comprehensive. Indeed, according to the evidence reported, the rules of origin of India’s preferences are in some respects as liberal as those of the EU. In the case of India, ‘the minimum cumulative local content requirement is 30 per cent of the value and change in tariff classification for the not wholly produced or obtained category.’ This is the same level as required ‘for most industrial products’ in the EU scheme for LDCs.
Trade preferences are one element of the support for LDCs that has been agreed in the WTO. Others include flexibility within the rules and disciplines governing trade measures, longer transitional periods and technical assistance. According to another recently published ICSTD article, ‘by and large, the consensus is that special and differential treatment has had only a limited impact on expanding African LDCs’ exports and promoting their further integration into the world trading system.’(2) The article cites a UN survey that found use of this support by LDCs to be ‘constrained by severe institutional capacity gaps, including communication and coordination failures’. It recommends the creation of an LDC portal as a central source of information that catalogues the wide range of LDC-specific international support measures that can improve LDCs’ capacity to use the support that is on offer.
The ICTSD review of preferences takes as its starting point the WTO initiative for all developed countries (and as many developing countries as feel able to do so) to provide substantial trade preferences to LDCs. Because of this, it omits the category of ‘low-income countries’ that are not least developed countries. Focusing trade support on LDCs on the assumption that they are synonymous with poor states risks two dangers. The first is that it misses out countries like Kenya that are low-income but not LDCs (because the criteria for the latter category include factors such as low human development and vulnerability). The second is that the beneficiaries face a serious trade challenge if they develop, since graduation from the LDC category results in their exports facing much higher tariffs. The quandary facing the East African community (EAC) in its EPA negotiations provides a good illustration: were the EPA to founder, the four LDC members would continue with duty-free access to the EU, but Kenya’s key agricultural exports other than tea and coffee would face significant barriers (as would those of its partners if they graduate out of the LDC group).
Despite this problem of confusing ‘LDC’ with ‘poor’, the starting point for the ICTSD review has one major advantage: it results in a comparison between the preferences of the EU (and other OECD states) and those of China, India and South Korea. While observing that the developing country preferences have some way to go, the report shows that the EU is facing growing competition from advanced developing countries that offer similar trade preferences to those traditionally extended by the EU to many ACP countries.
Comparing different rules of origin schemes is a very tricky exercise in which the ‘devil is in the detail’, so the broad-brush comparisons of the ICTSD report offer only a generalised introduction. However, the finding that on some measures the rules applied by the EU are no more liberal than those of India (and less liberal than those of the USA) is worth serious note. As the second ICTSD report argues, ‘stringent rules of origin prevent LDCs from realising their full market access potential.’ In addition, the EU’s rules of origin for LDCs are particularly restrictive for processed agricultural products (see Agritrade article ‘ EU agrees new rules of origin’, 25 December 2010).