How WTO Helps Developing Countries

The WTO system of principles, rules and obligations safeguards the interests of all members – including the economically least powerful – and they help governments to devise and pursue economic reform programmes.

The multilateral trade framework of rules can also assist domestic policy-making. WTO rules do not prescribe a trade policy but they do help governments consolidate development policies based on open, competitive markets.

A rules-based system

'Leverage' in market access negotiations requires a large market, attractive to exporters in other countries. Many developing countries do not have this negotiating power, so agreed concepts, principles and rules of trade are especially important to them.

The WTO system combines reciprocal market access negotiation of market access with rules on non-discrimination in trade - the “Most Favoured Nation” (MFN) principle. That is, market liberalization agreed between any two WTO members is extended to all members of the WTO.

For developing countries, one of the most important recent achievements of the WTO has been the strengthening of this multilateral framework of rules and agreements and their extension into new areas. WTO rules have been tightened on the use of measures that often target the exports of developing countries, including those on

• subsidies
• countervailing and anti-dumping duties
• safeguard measures.

The application of the WTO rules in merchandise sectors such as textiles and apparel and in agriculture - which are very important in developing country trade - has been strengthened and improved.

WTO disciplines now also cover sectors such as trade in services and trade incorporating intellectual property. As developing countries expand their imports and exports in these sectors, the new rules will help to ensure that these countries extract the greatest benefit from international trade.

All these rules are only effective, however, if there is an efficient and fair means to settle disputes in case of a breach of obligations. The WTO Dispute Settlement Understanding provides such a framework. Developing countries are now making frequent use of the dispute settlement mechanism, bringing cases against developed and developing country members.

How the WTO supports domestic reform programmes

Governments are frequently pressured to increase protection despite the additional costs this imposes on the economy overall. Taxes on imports or exports are also used by Governments as a convenient source of revenue.

The framework of rules and principles in the WTO helps to clarify the full impact of a trade policy decision, offering guidance and support for governments that choose to resist protectionist pressures in the interests of sustainable development.

Policy discretion is a two-edged sword. It can motivate politically powerful special interest groups to press for actions that are not necessarily acting in the interests of the national economy.

Political pressure may force governments to concede to the demands of these special interest groups

• undermining the credibility of economic reforms
• discouraging both domestic and foreign investors
• making domestic and foreign investors hesitant to commit funds to longer-term projects.

WTO obligations can help reform-minded governments resist protectionist pressures. The acceptance of multilateral rules and principles on trade-related policies can help a government balance special interest group demands against the advantages of compliance with liberalizing principles.

Recently, many WTO members have also chosen to bind trade liberalization in their WTO tariff schedules, greatly enhancing the credibility of their trade reform. The Uruguay Round negotiations allowed these countries to ‘count’ autonomous liberalization measures in the Round as part of their negotiating ‘coin’. The tariff bindings negotiated – in return for bindings by trading partners - helped many governments to consolidate their economic reforms.

Part of the support which the WTO rules offer governments is the assurance that trading partners, too, are bound by reciprocal obligations to reduce protection and to act fairly in their trade policies.

Some preferential treatment

Most developing countries have relied, from time to time, on special preferential access to developed country markets under the Generalized System of Preferences (GSP). These non-reciprocal trade preferences sometimes offered developing countries substantially better access to developed country markets than was available under bound MFN tariff rates.

But the preferences - which were not bound because they were granted unilaterally - were not secure rights and were, in any case, eroded over time as MFN tariff rates were reduced.

Offers by developing countries in the Uruguay Round to bind their tariffs have secured for them improved MFN terms of market access on a contractual - and therefore enforceable and predictable - basis.

Flexibility for developing countries

The WTO recognises that developing countries may need more time to implement new obligations such as those adopted in the Uruguay Round. For example, developing countries have a longer period in which to implement their TRIPS obligations. Developing countries are permitted under the Uruguay Round agreements, for example, to employ certain subsidies beyond the date for their elimination from the policies of developed countries.

Many of the agreements also contain specific provisions for technical assistance for developing countries in meeting their new obligations.

The Guide contains a special section detailing the additional flexibility built-in to the WTO Agreements in recognition of the interests of developing country members.

Also, in special circumstances, developing countries are permitted by the GATT to employ policies contrary to the principles of the treaty. For example, the rules in Article XVIII of GATT permit developing countries to use quantitative restrictions that would otherwise be prohibited by GATT rules to support the establishment or the development of an industry, although the conditions under which these provisions may be used were further tightened in the Uruguay Round.

Rules covering services trade

The General Agreement on Trade in Services (GATS) extends the rules based multilateral trading system to the large and dynamic sector of services trade. The benefits for developing countries should be similar to those they have enjoyed from WTO rules on merchandise trade.

As their services infrastructure and capacity increase, developing countries will be able to take advantage of the improved access opportunities the GATS provides. Many developing countries are not currently well placed to export services, however, domestic capabilities are growing.

Developing countries will benefit from liberalization of import barriers to services trade because this will lower the input costs for their manufacturing and agricultural industries. All manufactures, for example, are likely to include components of transport (road, rail or air delivery) services, professional (accountancy, design, engineering), telecommunications (faxes, telephone, telex) and financial (bank credits, business loans, export or import credit) services.

Competitive supply of these services – enforced by opening domestic services markets to competitive import supply – can make an important contribution to the competitiveness of export or import competing goods.

The GATS permits Member countries, including developing countries, to negotiate the conditions of access to their markets under which foreign services suppliers may establish in their countries. These terms and conditions are bound in the schedules of the member countries concerned.

Intellectual Property rules

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) offers potential benefits for developing countries by creating a policy framework that could help promote technology transfer and foreign direct investment. Its main disciplines include non-discrimination (most-favoured-nation and national treatment) and the equal application by all Members of minimum standards of protection for all categories of intellectual property rights.

The agreement also protects the interests of developing country firms as owners and exploiters of IP rights, particularly in the high-technology sector. Many developing countries were already introducing intellectual property protection regimes before the end of the Uruguay Round.

The new rules have many complex effects on trade flows. The overall impact continues to elude empirical studies. World Bank staff estimate, however, that the higher levels of protection have a ‘significantly positive’ impact on bilateral flows in non-fuels goods trade (Fink and Primo Braga – World Bank 1998).

Textiles and food trade

Despite entrenched opposition - in some of the wealthiest developed countries - to liberalization of trade in the textile, clothing, footwear and food sectors, there have been major changes in the WTO rules that apply to trade in these goods.

The new rules require the progressive elimination of the most protective trade barriers and put limits on the most trade-disruptive export policies in these sectors. But actual reductions in protection have so far been small.

In textiles and clothing trade, the phase-out of the quantitative import barriers sanctioned by the Multi-Fibre Arrangement – leaving only tariff protection for domestic markets - represents a fundamental change in protection policy. Developing countries are expected, eventually, to be the biggest beneficiaries of changes in trade flows, investment and the location of production that will result.

In the agricultural sector, developing countries will be among the primary beneficiaries of the reduction of both border-protection and the value and quantity of subsidized exports. The increase in minimum access to agricultural markets provided in the Uruguay Round Agriculture Agreement has given developing country food exporters some additional opportunities.

The special interests of the food importing countries – whose import prices could be affected by the Agreement - have been recognized in a Ministerial Decision which provides for potential access to special multilateral financial assistance. Many of these food-deficit countries, however, also have substantial domestic food production.

Given the right policy settings, producers in food-deficit countries should benefit from any increase in world prices, leading to higher levels of domestic production and lower national food deficits. For more on this subject, see the topic on the Agriculture Agreement.

It is expected that, because of the relatively small predicted changes in agricultural prices, the welfare effects for least developed and net-food-importing countries will be small, relative to GDP.

A recent assessment by World Bank staff of the welfare effects for least-developed and net food-importing countries as a result of the Uruguay Round Agriculture Agreement, found that:

• Changes in welfare are significantly affected by the structure of trade and distortions in the domestic economy. For example, in many least-developed countries, governments tend to tax producers heavily and subsidise food prices, particularly for urban consumers. Imported foods are commonly sold at prices well below world prices reducing the production incentives for domestic farmers.
• Although developing economies may suffer from any increases in world prices for food products following cuts to export subsidies, terms-of-trade losses are small in relation to total GDP. Only in a small number of countries is the estimated welfare change greater than one per cent of GDP.
• The effects of domestic economic distortions (such as subsidies for urban consumers) are significantly larger than the terms-of-trade changes. In some cases, the distortion effects oppose the terms-of-trade effects and are large enough to offset the terms-of-trade loss.


In short, removing policy distortions could convert a small loss in terms-of-trade to potential gains.