LDC GRADUATION

Report by the CHairperson of the Committee on Trade and Development TO THE GENERAL COUNCIL[1]

1.1.  On 24 July 2023, the General Council instructed the Sub‑Committee on LDCs (hereinafter the Sub-Committee) to examine Annex 2 of the LDC graduation proposal (_WT/GC/W/807/Rev.2) and to report to the General Council by 30 November 2023 with any recommendations. Accordingly, the Sub-Committee began its work in September. The first informal session of the Sub-Committee was held on 20 September. Since then, it held four informal sessions (16 October and 8, 20 and 22 November). In addition, a small-group consultation was held on 2 October. I have provided updates on this work at the formal session of the Sub-Committee on LDCs on 5 October, at the Informal Heads of Delegations meeting held on 10 October and at the Senior Officials Meeting that took place on 23-24 October (_WT/GC/259/Rev.1).

1.2.   The LDC Group identified some 17 special and differential treatment (S&D) provisions in WTO Agreements and decisions in Annex 2, to be included as part of smooth transition measures in support of LDCs after graduation. Based on requests from Members, these provisions were grouped in four main clusters by the LDC Group which was communicated to Members on 9 October (_ICN/COMTD/LDC/2). These clusters covered provisions related to market access, subsidies, intellectual property, dispute settlement understanding, trade facilitation and technical assistance. On 16 October Members reached a shared understanding on the sequencing of the clusters to be taken up by the Sub-Committee.

1.3.  All the 17 provisions identified were considered by the informal sessions of the Sub-Committee held in November. The Secretariat made factual presentations on the relevant provisions. Following is a succinct summary of the main points raised during the discussions including issues which may require further examination with a view to making progress. These points do not purport to be exhaustive. It is an attempt to help focus future deliberations on this topic, with a view to finding common ground for any recommendations.[2]

1.4.  The meeting on 8 November focused on market access-related elements of Annex 2. In the context of the discussion on the enabling clause, it was recognized that a number of preferential trade arrangements already provide LDC treatment to graduated LDCs for a certain period. It was also noted that access to preferential rules of origin applicable to LDCs depend on whether graduated LDCs would have continued access to unilateral trade preference schemes for LDCs, including certain conditions such as possibilities of cumulation. It was underlined that supply-side constraints have been an overpowering factor for LDCs' improved participation in services trade. Since the LDC Services Waiver Decision provides for automatic termination of preferential treatment with respect to LDC services and service providers, a decision would be required by Members if they intend to maintain the LDC preferences for graduated LDCs. The linkages between Annex 1 and trade-related elements of Annex 2 were referenced, and it was noted that greater clarity in this regard would help identify the scope on this issue.

1.5.  The meeting on 20 November considered the provisions related to subsidies, intellectual property (IP), and dispute settlement understanding (DSU). In the area of IP, LDC flexibilities under the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) included a general transition period (until 1 July 2034), a specific transition period for pharmaceuticals including related flexibilities (until 1 January 2033) and technology transfer. It was highlighted that Members have shown understanding towards graduating LDCs with regard to notification obligations of their IP systems after graduation. At the same time, some graduated LDCs submitted notifications of their IP laws and regulations prior to their graduation and some of the graduating LDCs have IP rights protection in place, especially in the areas of trademarks and copyrights. There was encouragement to graduating LDCs to consider making notifications commitment as part of the smooth transition mechanism. Some Members were also interested in examining the challenges and needs of LDCs in the area of intellectual property and how longer timeframes for the implementation of the TRIPS Agreement would help them achieve development goals. Members' efforts in implementing Article 66.2 of the TRIPS Agreement were also recognized. A suggestion was made to have a thematic discussion on this topic.

1.6.  With regard to the subsidies discussion, the LDC Group has sought two flexibilities: relevant provisions under the Export Competition Ministerial Decision (_WT/MIN(15)/45), and flexibilities under the Agreement on Subsidies and Countervailing Measures (SCM). The flexibilities available to LDCs and the net‑food importing developing countries (NFIDCs) under the Export Competition Ministerial Decision included phasing out of certain agricultural export subsidies by 2030, longer repayment terms for the acquisition of basic foodstuffs and flexibility to monetize international food aid, including for the purpose of transport and delivery of the food assistance. It was also noted that the LDCs and NFIDCs listed in document _G/AG/5/Rev.10 would be able to continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2030. It was reiterated that export subsidies to cotton had been phased out in 2017.

1.7.   With regard to the SCM, the standalone proposal by the LDC Group in the Council for Trade in Goods submitted in 2018 was recalled (_G/C/W/752). The LDCs sought clarification on whether they would be covered under Annex VII (b) if their GNP per capita is below USD1,000 in constant 1990 dollars at the time of graduation. It was highlighted that the lack of notifications had been a challenge to assess the impact of losing access to SCM flexibilities. Members sought clarification on the use of the relevant subsidy provisions by LDCs. Several sought clarifications on how a Member that left Annex VII (b) of the SCM Agreement could be reincluded and the process for phasing out export subsidies upon achieving the export competitiveness threshold.

1.8.  With regard to the discussion on the provisions under the DSU, it was noted that LDCs so far made very limited use of the dispute settlement system and that none of the LDCs had ever been a respondent. Some Members also sought clarifications on the provision of Article 24.1 of the DSU and the peace clause identified in paragraph 3 of Annex 2 of the LDC graduation proposal. Some noted that LDCs' request for an exemption from DSU after graduation would set a higher standard than the one currently available to LDCs under the DSU.

1.9.  At the meeting on 22 November, the Sub-Committee considered the provisions related to the Trade Facilitation Agreement (TFA). It was noted that flexibilities available for developing countries in the context of the implementation of category B and C provisions would largely address the needs of graduated LDCs. It was also noted that the grace period for the application of DSU with respect to the implementation of category B and C commitments would not be available if a Member graduates from LDC status, although graduating LDCs have already self-determined their individual implementation timeframes ranging from 2024 to 2050. Members indicated that the TFA was crafted to address the specific needs of developing countries and has built-in provisions to cater to specific circumstances.

1.10.  Members also discussed a provision related to the Agreement on Fisheries Subsidies; some indicated that since the Agreement had not entered into force, it would be somewhat challenging to discuss the flexibility accorded to the LDCs. Some also noted that it contained a de minimis requirement by which most of the LDCs would be covered with regard to the frequency of notification obligations.

1.11.  The duration of a possible transition period for the provisions identified in Annex 2 was also raised by the LDC Group at the 22 November meeting, while some Members were of the view that a discussion on a duration would be premature.

1.12.  During the above meetings, the Secretariat also highlighted several technical assistance activities of relevance to LDCs, including introductory and intermediate trade policy courses for LDCs. It was also noted that LDCs were accorded a priority in considering requests for national activities and internship programmes. At the same time, the Secretariat indicated that a wide range of technical assistance would remain available after graduation. It was also noted that the Secretariat remained committed in assisting graduating LDCs with greater integration into the multilateral trading system.

1.13.   In all these discussions, the LDC Group was of the view that the provisions contained in Annex 2 were critical policy tools to support their structural transformation towards development, and that their request sought to extend the existing LDC-specific flexibilities granted by Members for a certain period of time after graduation. The Group recalled the MC12 outcome document (_WT/MIN(22)/24) which recognized the role that certain measures could play in facilitating a smooth and sustainable transition for LDCs after graduation. The application of a peace clause as a mechanism for legal coverage for the implementation of the proposed measures was envisaged during the transition period.

1.14.  A number of Members underlined the need to identify specific challenges in order to provide targeted solutions. Members also requested the LDCs to provide more information on what specific problems that graduating LDCs had been encountering in the areas identified in Annex 2, in particular TRIPS and SCM, and what individual graduating LDCs plan to do with the requested flexibilities. It was acknowledged that more time was required to achieve a shared understanding of different dimensions of Annex 2 provisions on the table and a further mandate from the General Council would be required. It was also recalled that the outcome on Annex 1 (_WT/L/1172) was an important achievement ahead of MC13.

1.15.  Overall, the Sub-Committee had a substantive and constructive discussion. Members engaged with willingness to address the challenges faced by the graduating LDCs in implementing WTO rules and disciplines. While a lot of progress has been made, I believe more time would be required for an in-depth examination of the 17 S&D proposals identified in Annex 2 with a view to making any recommendations to the General Council. In view of the above, the General Council may consider instructing the Sub-Committee to continue the examination of Annex 2 of the LDC graduation proposal and provide an appropriate period of time. The upcoming 13^th Ministerial Conference could offer an opportunity to take further stock of the progress made, including the possibility of any decision to further support the LDCs on the path to graduation.