Policy Space for Industrial Development – Advancing WTO Committee Work
to Support Structural Transformation and Industrial Development
in Developing Countries

communication from the african group

The following communication, dated 13 May 2024, is being circulated at the request of the delegation of Chad on behalf of the African Group.

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1  Introduction

1.1.  This contribution is submitted to inform WTO Members of the activities and initiatives the African Group will be advancing in pursuance of the objectives substantively outlined in the various submissions by the African Group on Policy Space for Industrial Development.^[1]

1.2.  Development remains one of the most critical challenges that the world faces today and that the World Trade Organization must respond to. This challenge is acutely pronounced in the deepening of economic divergences, especially between developing country economies and developed or advanced economies.

1.3.  Developing countries face significant constraints in implementing industrial policy measures to transform their production structures due to among others, existing rules that uphold the status quo. This situation highlights a critical oversight by developed countries that historically used similar measures to advance their industrial development. In response to the reality of unequal distribution of the gains from trade and share in global value chains, there is a need to rebalance and recalibrate the WTO policy toolbox. This is more so given the imperative of addressing contemporary challenges such as mitigating climate change and promoting sustainable development.

2  Commodity Dependence and the Imperative of Structural Transformation

2.1.  In the wake of the multiple crises that buffeted the world since the COVID-19 pandemic, the global economy is marked by deep economic divergences, with activity in many developing regions and countries still below pre-pandemic levels. Some recent updates, including the WTO Global Trade Update 2024^[2], have painted a positive picture of rising activity in trade in goods and services, with developing countries' exports showing an uptick largely based on increasing commodity prices. The export baskets of most developing countries in general are, however predominantly commodity-based, essentially primary commodities.

2.2.  Commodity dependence leaves developing countries vulnerable to international price shocks, particularly in the context of global uncertainty, with such events among others triggering reversals in capital inflows and generating macroeconomic dislocation that results in dwindling revenues, debt spirals, inflation, and poverty.^[3] As reported in the IMF World Economic Outlook 2024^[4], these secondary effects compound the development challenges faced by many developing countries. UNCTAD goes further to point out that a country's Human Development Index value is significantly and negatively correlated with export concentration and commodity dependence.^[5]

2.3.  This reality amplifies the importance of manufacturing and value addition as the bases for developing sustained industrial capabilities. This has been true of those middle-income countries that broke out of the middle-income trap through innovation-led growth with a strong focus on industrial upgrading and productive services. If we take the example of critical minerals, Africa's historical position fixed at the bottom rung of global value chains could potentially worsen if trade rules do not promote structural transformation.

2.4.  Multilateral trade rules cannot remain static in the face of these extant challenges and historical patterns of international trade that have inhibited structural transformation and crippled the resilience of many developing countries, especially African economies. The WTO has an important role to play in contributing to inclusive development and, principally, meaningful integration of developing countries in global value chains. Export diversification is a crucial factor for resilience. It is vital for global stability that all countries build resilience in their production base and that their exports are broadly diversified.

2.5.  Overcoming the trust deficit in the multilateral trading system and bolstering the relevance of the WTO will entail making the institution responsive to developing countries' development needs. Fundamentally, this must include supporting a shift in Africa's structural profile so that the continent is not trapped in a commodities-based growth path but also produces and exports a diversified range of products. This transformative possibility will require more than just structural reforms; it also needs to draw on industrial policy measures and tools to help developing countries close the existing industrial development gap. There is abundant evidence of the utility of such policy measures both in the past and the present that have been utilized successfully by a diverse subset of WTO Members.

2.6.  It is notable that those developed economies that are building new capabilities, diversifying their economic base, and discovering new sources of competitiveness are not relying solely on structural reforms. They are deploying various state-backed instruments to sustain competitiveness and create high-paying jobs in these new sectors. The consistency of some of these measures with WTO obligations appears questionable. Some of these Members have used and continue to use measures such as local content requirements, providing state aid and grants, and tapping into development finance institutions to provide subsidised capital. These measures are capabilities that the majority of developing countries do not possess, yet they are constrained by the rules in undertaking similar measures to support their economic resilience. Moreover, certain provisions under GATT 1994/TRIMs Agreement, for example constrain developing countries from enhancing domestic spill-overs from investments. This demonstrates the relevance of policy space to promote industrial upgrading.

3  Building on MC13

3.1.  Although MC13 could not produce the outcome the African Group envisaged, the rich engagements on this topic by Ministers highlighted the urgency of the WTO to confront the structural transformation and industrialization challenges faced by many developing countries. Indeed, several Members underscored the need to rebalance existing trade rules, particularly in the Agreement on Subsidies and Countervailing Measures (ASCM), Trade-Related Investment Measures (TRIMs), and Trade Related Aspects of Intellectual Property Rights (TRIPS), including technology transfer, in a manner responsive to their development needs and facilitating the integration of developing countries into global value chains. 

3.2.  The re-examination of the policy instruments identified by the African Group has even greater significance today in light of the green transition. The African Group will be building on the longstanding papers it has submitted on several occasions to the WTO over the years to explore how trade rules can become a positive force for promoting shared growth and inclusive development, including in the race towards a green transition. At the core of the African Group's objectives for policy space is that trade rules should create an enabling environment for developing countries to undertake measures to promote structural transformation and industrial development. 

4  Way Forward

4.1.  The WTO must build on the momentum generated by the ministerial discussions at MC13 in Abu Dhabi on the need to recalibrate specific WTO rules to make them fit for purpose, primarily to support structural transformation and inclusive development. We call on Members to engage in good faith discussions on the African Group proposals on policy space.

4.2.  The African Group intends for such discussions to be focussed and structured. This relates to the specific aspects of each identified agreement while introducing in some cases a sectoral dimension to facilitate the discussions.

4.3.  The African Group will pursue discussions in the CTD as a focal point for the consideration and coordination of work on development in the WTO^[6], including relevant WTO subsidiary bodies, as necessary and in line with their technical mandates, e.g. the SCM Committee, TRIMs Committee, the TRIPS Council, WGTTT, etc. Such engagements will be canvassed in formal regular agendas of these meetings and through other modes of engagement, including thematic sessions. Cross-committee collaboration between relevant WTO bodies will also be proposed in the conduct of some of these activities.

4.4.  The African Group remains open to ideas and suggestions from all Members that would help advance the objectives outlined herein, including the technical elements envisioned in the policy space for industrial development submissions. The activities outlined above will also enrich and inform any improvements to the proposed recalibration of WTO rules to meet the objective of industrialization and confront other contemporary challenges. The African Group will consult with Members in various formats to seek their support and consider their contribution to this endeavour.

4.5.  The African Group is keen to see progress on the recalibration of the rules to advance industrialisation and structural transformation ahead of MC14 and believes the GC is well placed to make decisions between Ministerial conferences. The GC will, therefore, need to provide oversight on the work undertaken by the various Committees through periodic reports by the Committees on their respective work so as to inform decision-making.

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