A Quest to be Equal in the Club of Unequals
It has been a decade since Ethiopia applied and began preparations to become a member of the world’s trade governing body, the World Trade Organization (WTO). It submitted the application for the accession in January 2003. Since that time it has accomplished some of the basic requirements and negotiations to be able to ascend. It is expected to complete the negotiations and be a full member as speculated in the Growth and Transformation plan (GTP) by 2015.As an umbrella international organization for the implementation, administration and operation of the covered agreements of global rules of trade between nations, the WTO provides the principal contractual obligations and a platform for negotiations amongst members through the period rounds, acting as a forum for multilateral trade negotiations. It also carries out settling of trade disputes, reviewing national trade policies, assisting [developing] countries in trade policy issues through technical assistance and training programmes in cooperation with two other components of the Bretton Woods system, the International Monetary Fund (IMF) and World Bank.
When a country is a member of the WTO it means it will abide the organization’s as well as member states’ trade laws, regulations and practices. To this end any country that wishes to join the organization is expected to restructure its own trade laws, regulations and practices to make them compatible with that of the agreed trade practices. Ethiopia is not an exception to this.
Although Ethiopia has been a member and even founder of most international organizations it didn’t join the WTO or its predecessor, General Agreement on Tariffs and Trade (GATT). Concerning Ethiopia’s bid to join the trade organization, as there are proponents to the idea of immediately completing the accession process, there are voices of dissent about the challenges the country will face after the accession in general and on the timing of the accession in particular.
How will Ethiopia benefit by joining the WTO and what will it lose? Many ask why the country needs to join the organization now and why Ethiopia rejected the invitation to be a member of the GATT, when it was established in the 1940s after World War II. Ethiopia has had other opportunities to join and still chose not to. Most importantly, what must the country do to garner the benefits and minimize the shocks if it succeeds in joining the WTO?
Ethiopian has been in the WTO in an observer status from 2009 to 2002 promising to join the club soon. It applied for full membership in 2003 and it took more than four years to prepare and submit the Memorandum of Foreign Trade Regime (MFTR), the basic document to start fact finding information gathering and establishing of a Working Party. This will be escorted to the bilateral negotiations which are fundamental for the completion of the accession.
Based on this MFTR document, member countries, interested in trading with Ethiopia have made inquiries they wanted to be explained; they have asked for improvement and changes on trade policies and practices of the country which are incompatible with those employed by the WTO and its members. They have also solicited documents and data on the overall trade practices of the country.
Three rounds of fact finding and information gathering questions and answers have taken place so far and the fourth round of questions has been received and the Trade Relation and Negations Directorate at the Ministry of Trade in collaboration with all other stakeholders are preparing replies to be sent back soon.
In the first round of inquiries, 197 questions mainly from the United States and Canada were raised and explanations with supporting documents have been sent. In the subsequent two rounds similarly, replies for 144 and 134 questions sent from USA, Canada and the EU were sent back.
If they are satisfied with the answer of the fourth round inquiries of 168 questions, this time questions also came from Korea, then bilateral negotiations [negotiations with individual countries that have interest to trade with Ethiopia], which is the most important part of the accession process, will start according to Geremew Ayalew, director for Trade Relation and Negations at the Ministry of Trade.
According to the director the most repeatedly asked questions in these inquiries are about the importing license procedures, trade-related aspects of intellectual property rights (TRIPS), custom procedures and trade facilitation of the country among others. With the completion of the fact finding phase, the bilateral negotiations and working party report, protocol of accession and goods and services schedules will take place.
In the bilateral negotiations the country is expected to face the most challenging aspects of the negotiation process by meeting with countries willing to negotiate such as the USA, Canada, Australia, EU, India, Brazil, Korea, and others; face to face and sector by sector.
Core Principles of WTO Trading System
The WTO establishes a framework for trade policies; it does not delineate or specify outcomes. That is, it is concerned with setting the rules of the trade policy games. Five principles are of particular significant in understanding both the pre-1994 GATT and the WTO.
The first and the most important principle of Non-discrimination has two major components; the Most Favored Nation (MFN) rule, and the national treatment policy. While the MFN rule requires that a WTO member must apply the same conditions on all trade with other WTO members, i.e. a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members, which basically means if you grant someone a special favor and you have to do the same for all other WTO members.
Whereas National Treatment Principle implies that, imported goods should be treated no less favorably than domestically produced goods at least after the foreign goods have entered the market and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods).
The second principle Reciprocity reflects both a desire to limit the scope of free-riding that may arise because of the MFN rule, and a desire to obtain better access to foreign markets. A related point is that for a nation to negotiate, it is necessary that the gain from doing so be greater than the gain available from unilateral liberalization; reciprocal concessions intended to ensure that such gains will materialize.
While the binding and enforceable commitments and transparency are the third and forth core principles of trading system in WTO, the fifth principle Safety Valves gives special privileges that in specific circumstances, governments are able to restrict trade. The WTO’s agreements permit members to take measures to protect not only the environment but also public health, animal health and plant health.
Other International Trade Policies
There are other issues that affect the trading systems of countries that the WTO necessitates to members to accept. Tariff on imports and exports, non tariff barriers for international trade are the most important ingredients of trade policies among the WTO member nations.
The WTO assumes the member states’ commitments to cut and “bind” their customs duty rates on imports of goods. In some cases, tariffs are being cut to zero. There is also a significant increase in the number of “bound” tariffs — duty rates that are committed in the WTO and are difficult to raise. This is where many critics of joining the WTO raise their voices that it will diminish the revenues of the government, which it uses for different developmental investments, particularly building infrastructure.
The WTO also forces countries to have an agreed pattern on other non tariff barriers such as import licensing, rules for the valuation of goods at customs, pre-shipment inspection: further checks on imports, rules of origin and investment measures. It also deals with import quotas, voluntary export restraints, technical, administrative and other regulations such as safety regulations, health regulations, labeling requirements, international cartels, dumping, export subsidies, new protectionism as well as strategic trade and industrial policies.
The Pros and Cons of Joining WTO
159 countries out of the total of 195 independent countries, and almost all of the politically and economically vital nations on the planet are members of the WTO. Many others are in different phases of the process. The WTO membership accounts for more than; 98Pct of world trade, 98Pct of the global GDP and 96Pct of the world’s population.
The major benefit member countries of WTO see is the openness of sustainable and predictable market access. According to Geremew who is in charge of the office responsible for this negotiation at the Ministry of Trade, being a member of this organization creates sustainable and predictable market access thus helps in building investors confidence and attract foreign direct investment (FDI). More over it improves competitiveness of local industries and serve as an instrument for domestic policy, legal and institutional reform, above all “welfare enhancement”
Critics on immediate joining of the WTO however say that market access isn’t the problem of the country at this time. “Market is not what Ethiopia needs most at the moment” argues, Yabowork Haile an expert on the issue. The expert has conducted a research on international trade, and now serves as manager of Gasha Micro Finance SC. For him, the political pressure that the government has been through from western countries that are already member of the WTO explains why Ethiopia wants to join the organization. He substantiates his argument with the fact that the country hasn’t been able to use the market opportunities such as the African Growth and Opportunity Act (AGOA) and Everything But Arms (EBA) market opportunities granted to least developing nations by the US and EU respectively. Two of the largest markets in the world are pretty much open to Ethiopian exports, even without the nation’s entry into the WTO. Other main markets, such as India, China, etc. are also offering similar opportunities. He asserts his argument “Ethiopia’s challenges are no market access but shortages from the supply side – being unable to produce the required quality and quantity of goods and services to be marketed,” he told to EBR in an interview after presenting a deviating stand about the Ethiopia’s accession to the WTO in a panel discussion held at Addis Ababa University few weeks before.
In addition to this, Yabowork argues that accession to the WTO and opening up the market with WTO standard tariffs and non tariff barriers will only bring a devastating effect on the local infant industries which are not in a position to compete with products of any of the developed nations. It will also hurt the agriculture and service sectors, citing impact assessment research that was conducted to demonstrate the impact of Economic Partnership Agreement (EPA). He also mentioned the West’s substantial subsidy to their agriculture as a factor to the disadvantage on the agricultural sector .
Geremew repudiated this idea, that countries should not make deals and agreements such as accession to the WTO by looking only short term benefits. Geremew pointed to not only short but also long term benefits that Ethiopia’s accession will have.
The private sector and the way forward
Arguably, the accession of Ethiopia to WTO will have an important impact on the country’s private sector. In spite of this, the private sector’s role in accession negotiations has to date been very limited. Although the private sector is represented in Ethiopia’s WTO Technical Committee, so far “no strategy has been prepared by the private sector in order to ensure that WTO accession works to its benefit,” reveals a discussion paper presented at National PSD [private sector development] Conference, Competitiveness of the Ethiopian Private Sector: New Challenges, New Opportunities. With an estimated two years left until accession, the definition and implementation of such a strategy now is an urgent task, as measures will take time to yield results.
What is frequently said about the accession is not ‘Nay to the WTO’, rather the country needs to be ready for joining the merciless global trade competition. Ethiopia has been appreciated for refusing some of the trade negotiations in previous times mainly by putting a number of prerequisite which are mainly developmental bench marks. A senior government official at the Ministry of Trade says “if we push the time further, we will attain the middle income status and with this comes with several specific requirements and higher expectations in the accession and negotiation process”.
The WTO is not designed to serve the interest of poor countries such as Ethiopia. “But we don’t have a choice since we are part and parcel of the global economy,” says Zemedeneh Nigatu, Managing Partner for Ethiopia and Head Transaction Advisory Services at Ernst & Young. It will be very difficult for the private sector but the solution is to wake up and get ready to compete and survive. If we are well prepared we can seize the advantages that come along with the WTO full membership, he adds.
He also admits that it wouldn’t be possible to have well established 15 private banks we have now if we didn’t allow time for them to grow without global competition. The same is true for the telecom and other protected services. As a country we should give differentiated support such as credit access to local private investors.
Many agree that Ethiopia needs more time to prepare and fulfill the requirements to join the WTO. Even one point of negotiation that Ethiopia requests frequently is to have time to fix things which may create uneasiness for Ethiopian business. But this time should also accompany developmental benchmarks that need to be fulfilled.
Analysis made on the agreements Ethiopia is going to negotiate shows development bench marks are still below the desired level and they are not going to be in its favor, Yabowork argues. Let there be as many discussion forms as needed and a national consensus be reached before signing the deal he adds. WTO is not a charity organization; rather it is a market administering body. All the agreements in WTO are signed only when developed countries have gained comparative advantages. No one comes to WTO unless one has a benefit to make from the organization. And Ethiopia should make sure that it benefits by joining the trade governing body. EBR
2nd Year • January 2014 • No 11