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The experiences of Nepal and Cambodia since their WTO accession give a glimpse of the challenges other least-developed countries could face upon joining the multilateral trading system. Much will depend on their commitment to domestic reform and effective external technical assistance.
On 23 July 2008, the WTO welcomed Cape Verde as its 153rd Member after eight years of negotiations. Director-General Pascal Lamy hailed the accession as an opportunity for the country to participate ‘more fully in the global economy’, providing Cape Verde ‘with a predictable and stable basis for growth and development’ shortly after the small African state managed to graduate from least-developed to developing country status in 2007.
The accession of Nepal and Cambodia in 2003 was greeted with similar enthusiasm. Five years on, how have these two least-developed countries (LDCs) fared in taking advantage of their WTO membership? While it is still too early to assess long-term socio-economic impacts, the countries’ experiences in the first years of membership provide an interesting insight to the challenges that other LDCs are likely to face after joining the WTO club.
Nepal’s and Cambodia’s membership bids were part of a broader strategy aimed at increasing and diversifying trade as a means of promoting economic growth and reducing poverty. Accession was also motivated by a desire to ensure predictable market access, become eligible for special concessions available to LDCs under WTO rules and receive technical assistance for trade development. However, in the short term at least, WTO membership seems to have had limited direct impacts on trade expansion or diversification. One reason is that both countries already had a liberal trade regime at the time of accession and enjoyed preferential access to many of their key markets. Nevertheless, WTO membership did increase predictability of non-preferential tariffs and other border measures, including assurance that no quotas would be imposed on their garment exports following the phase-out of the Textiles and Clothing Agreement in 2005. In addition, Nepal and Cambodia have joined other LDCs in the ongoing WTO negotiations in pushing for putting into practice Members’ commitment to provide duty- and quota-free market access for least-developed countries.
Compared to tariffs, non-tariff measures present a more significant obstacle to trade expansion for the two countries, in particular certain rules of origin requirements and safety and quality standards, which have prevented Nepalese and Cambodian exporters from taking full advantage of preferential market access. In addition, supply-side constraints (such as limited access to credit, poor infrastructure, the high costs of doing business and underdeveloped technological and human resource capacities) have limited their ability to increase and assure reliable supplies of their exports. The countries had hoped that WTO membership, where it acts as a lever for technical assistance and domestic reform, could help address some of these issues. In both regards, however, membership – at least in the first five years – has not lived up to expectations.
While multilateral and bilateral technical assistance activities have increased following the countries’ accession, they have not been sufficiently comprehensive and effective. Coordination among the various donors has been a particular challenge. Bilateral donors have tended to fund activities based on their national interests, such as the development of specific laws, often drafted by foreign experts based on model laws from the donor countries. Moreover, technical assistance has been unevenly distributed among beneficiaries, much of it channelled to ministries of trade and finance. Recently, efforts have been made in Cambodia to improve technical assistance provision through the Enhanced Integrated Framework for Trade-related Technical Assistance to LDCs, although the co-ordination process has been slow to get off the ground.
The impetus that WTO accession can provide for accelerating domestic economic, legal and institutional reforms to create a stable business environment and attract foreign direct investment is often seen as perhaps the most important benefit that LDCs can gain from WTO membership. In their accession packages, Nepal and Cambodia signed up to ambitious legislative reform agendas, agreeing to pass numerous new laws and amending existing ones over the following three years. However, both countries fell far short of fulfilling their promises. By the end of 2007, Cambodia had adopted just 24 of the 47 laws/regulations while Nepal had enacted 3 of the 10 new laws and adopted 8 of the 25 amendments.1 In the absence of an international monitoring and enforcement mechanism for the (rather unrealistic) deadlines, the momentum for reform quickly faded, compounded by limited capacities to draft, implement and enforce the laws/regulations and set up and manage the necessary institutions.
Nevertheless, WTO membership has served to put Cambodia back on the world and, importantly, investors’ map, which has likely contributed to the almost six-fold increase in foreign direct investment since the approval of the country’s membership in 2003.
The experience of Nepal, however, shows that WTO membership alone does not guarantee increased foreign investment (still stagnant five years later), let alone ‘growth and development’. Rather, it is just one of the many steps necessary to help poor countries integrate into the global economy. Accession needs to be followed up with effective technical assistance and commitment to domestic reform. It is the responsibility of the international community to hold both donors and newly acceded countries accountable for their promises.
Heike Baumüller is the Regional Co-ordinator of the Southeast Asian Programme of the Trade Knowledge Network, Cambodia. Ratnakar Adhikari is the General Secretary and Navin Dahal the Executive Director of South Asia Watch on Trade, Economics & Environment, Nepal.
ENDNOTE
1See http://www.tradeknowledgenetwork.net for full-length studies on Nepal’s accession by the Trade Knowledge Network.
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