Graduation from the LDC category in multilateral agreements

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Date produced: 01/07/2019

Under the “matters relating to the least developed countries” agenda item 10 of the SBI 50, the issue of the graduation from LDC status is being discussed. Parties are discussing what kind of transition period might be needed under the UNFCCC, including possible transition period length, flexibilities given and other contexts

Please advise how graduation/transition from LDC status is treated under other multilateral agreements in terms of timelines, flexibilities and other contexts?

Advice:

I. Summary

The principle that LDC-specific support should be phased out in a gradual and predictable manner following graduation, so as to not disrupt the development process of a graduating country, is well established and is promoted by UN General Assembly resolutions 59/209, 66/213 and 67/221. None of the resolutions includes guidelines for the prescribed length of time for the transitional period. They recommend a fixed period of time for ongoing LDC support following graduation, according to the specific development situation of each graduating country. Timelines for post-graduation transition periods vary from three to five years (for instance, the UNCDF, EBA, EIF, Technology Bank), and some three year timelines may be extended subject to further approval.

The process for LDC graduation tends to involve review, analysis and information gathering, recommendations and endorsement, establishment and consultative mechanisms, development and trading partner assistance and monitoring.

International support following graduation tends to fall into one of three categories: official development assistance; trade-related measures; or other measures such as budget allocations to LDC-specific funding mechanisms and caps on LDC contributions to the budget and travel support.

We provide below a high-level review of the treatment afforded to LDCs under multilateral agreements during both the pre-graduation and post-graduation periods.

II. Transitional period pre-graduation

The Committee for Development Policy (“CDP”), a subsidiary body of the UN Economic and Social Council, is mandated to review all LDCs every three years and monitor their progress after graduation from the category.

In theory, a country graduates from the LDC category three years after the General Assembly takes note of the Economic and Social Council (“ECOSOC”) endorsement of the recommendation of the CDP.  Under exceptional circumstances the General Assembly may grant the country a longer preparatory period. During this preparatory period, the country remains on the list of LDCs and continues to benefit from the special support measures associated with LDC status.

While standard pre-graduation process takes three years, in practice, it frequently takes longer (see Section IV(D) below) and graduation criteria are not applied mechanically. CDP, ECOSOC and the General Assembly often defer their consideration or decisions, or grant additional transition periods, based on the unique situation of each country. For example:

  • In 2018, the CDP decided to defer its decisions on Timor-Leste and Nepal, because it had serious concerns about the situation of the country or the sustainability of the country’s development progress.
  • In 2018, ECOSOC deferred its consideration of Kiribatu and Tuvalu’s graduations to future sessions; and
  • On multiple occasions, the General Assembly, on an exceptional basis, has decided on a preparatory period longer than three years (e.g., in 2015, Angola’s preparatory period was fixed at five years); or extended the preparatory period after having set an initial graduation date (e.g., in the Maldives and Samoa, hit by tsunamis in 2005 and 2009, and Vanuatu, due to Cyclone Pam in 2015).

During the preparatory period, graduating countries are invited to prepare a national smooth transition strategy, with the support of the United Nations system and in cooperation with the country’s bilateral, regional and multilateral development and trading partners.  It is recommended that the graduating countries establish a consultative mechanism to facilitate the preparation of a smooth transition strategy.  The strategy is to be implemented only after the effective date of graduation and aims to ensure that the country’s sustainable development efforts are not disrupted by the loss of LDC-specific support measures after graduation (A/RES/67/221).

III. Transitional period post-graduation

The 2012 UN General Assembly resolution A/67/221 considered the smooth transition for countries graduating from the list of LDCs and called upon UN entities to consider the extension and gradual phasing out of LDC support for a fixed period of time in a predictable manner that was applied according to the specific development situation of each graduating country.

In light of resolution A/67/221, as part of its Strategic Framework 2018-2021, the United Nations Capital Development Fund (“UNCDF”) articulated its new smooth transition support. Its approach is demand driven and time-bound: during the first three years after graduation, programmes will be funded as they were prior to graduation with the possibility of extension by additional two years, which involves an element of cost sharing.

UN General Assembly resolution A/67/221 recognises the importance of making available information about least developed country-specific support measures and related smooth transition measures in the following areas:

  • financial support;
  • technical assistance; and
  • trade-related measures, including their time frames, characteristics and modalities.

Still in the same resolution, the Support Measures Portal for Least Developed Countries, developed by the Department of Economic and Social Affairs of the Secretariat is commended as a valuable comprehensive tool for online information-sharing, and encourages its continuous updating and improvement.

The UN body, the Technology Bank for LDCs, established in 2016 (A/71/363) as a result of the Istanbul Programme of Action, supports graduated LDCs in strengthening their science, technology and innovation capacities and accessing appropriate technologies for a set period of five years after the date of graduation.

Similarly, the Enhanced Integrated Framework (“EIF”), a multi-donor programme that exclusively helps LDCs to use trade as a vehicle for poverty reduction and growth, offers any graduating LDC the opportunity to continue to receive technical assistance for three years, with a possibility of an extension for another period of two years, subject to justification and approval by the EIF Board.

IV. Examples of transitional measures employed in multilateral agreements

WTO Multilateral Agreements

LDC-special and differential treatment provided in the World Trade Organization (“WTO”) Agreements usually cease with graduation. Graduating LDCs may negotiate special arrangements with WTO members in any area where they require additional time. To benefit from special transition periods or technical support following graduation, LDCs must however put forward the requisite proposals for consideration by the WTO membership.

By the end of the smooth transition period, graduating countries have lost access to all LDC-specific SDT provisions under WTO rules and WTO-compliant regional trade agreements, as well as those afforded by their trading partners, retaining access only to the typically less generous provisions available to ODCs.

Regional Multilateral Treaties

1. The Pacific Agreement on Closer Economic Relations (“PACER”)

The PACER is an umbrella agreement between members of the Pacific Islands Forum (the Forum Island Countries plus Australia and New Zealand) providing a framework for the future development of trade cooperation. It was first signed at Nauru on 18 August 2001 and entered into force on 3 October 2002. It sets an outline for the future development of trade and economic relations across the Forum region as a whole.

Generally, the PACER considers that, after graduation, LDCs are known as “year N LDCs” where N is the number of calendar years following its date of graduation. The treaty considers that that number goes from 1 up to 25. The treaty also considers that developing countries (including LDCs) should be allowed favorable treatment, including the prohibition for Parties to create unnecessary obstacles to exports from developing country Parties and creating measures that have objectives to include greater market access to developing countries. Developed countries are expected to support developing countries and therefore must assist developing country Parties with their efforts in this direction. Developed country Parties shall take into account the special needs with regards to financing, trade and development.

2. South Asian Free Trade Area (“SAFTA”)

The SAFTA is an agreement reached on January 6, 2004. It created a free trade area of 1.6 billion people in Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

This multilateral treaty contains a specific provision for the preferential treatment of the Maldives in the case of a potential or actual graduation. It is provided that any subsequent contractual undertakings guarantee a treatment no less favorable than that provided for the Least Developed Contracting States. Therefore, the Maldives, while graduated, will still benefit from the advantages afforded to LDCs.

3. Asia Pacific Trade Agreement (“APTA”)

The APTA, previously known as the Bangkok Agreement, was signed in 1975. Bangladesh, China, India, Lao PDR, Mongolia, Republic of Korea, and Sri Lanka are the parties to the APTA.

The APTA defines developing member countries as those countries included in paragraphs 3 and 4 of the terms of reference of the Economic and Social Commission for Asia and the Pacific, including any future amendments thereto. “Least developed country” means a country designated as such by the United Nations. The APTA was signed and designed by developing countries. It is reserved for them. It does not contain any specific transitional measures in its text nor any preferential agreement.

4. Global System of Trade Preferences among Developing Countries (“GSTP”)

The GSTP is a preferential trade agreement signed on 13 April 1988 with the aim of increasing trade between developing countries in the framework of the United Nations Conference on Trade and Development.

The GSTP was signed and designed by developing countries.[1] It is reserved for them. It does not contain any specific transitional measures in its text nor any preferential agreement.

Sui-generis preferences systems: the EU and Turkey

The “Everything But Arms” (“EBA”) initiative, introduced in 2001 under the EU’s Generalized Scheme of Preferences (“GSP”), grants LDCs duty-and quota-free access for almost all products (as the program’s name indicates, arms and ammunition are excluded). For the period until December 31, 2023, it is regulated by Regulation (EU) No 978/2012 of the European Parliament and of the Council. The Regulation provides that for a country no longer classified by the UN as a least-developed country, a transitional period should be established, to alleviate any adverse effects caused by the removal of the tariff preferences granted under this arrangement. Tariff preferences provided under the special arrangement for the least-developed countries should continue to be granted for those least-developed countries which benefit from another preferential market access arrangement with the Union. The Regulation further provides that the transitional period will be of three years from the time that a country is removed from the relevant LDC list.

Turkey provides DFQF access for LDCs under its GSP scheme which entered into force on 1 January 2002. Its last renewal dates 1 January 2012. Eligibility to Turkey’s DFQF benefits is set in accordance with the relevant regulations of the European Union. As Turkey follows the European Union regulations, graduated countries are accorded a smooth transition period of at least 3 years.

The Smooth Transition Experience of Recent LDC Graduates

1. Cabo Verde

Cabo Verde’s mainly trades with the European Union, from which it obtained a three-year extension of its eligibility under the “Everything But Arms” initiative, followed by an additional two-year transition period until 1 January 2012. In late 2013, Cabo Verde became one of the first 10 countries to qualify for the European Union’s enhanced Generalized System of Preferences-plus (“GSP+”) trade regime, which is available to vulnerable countries that have ratified and implemented international conventions relating to human and labor rights, environment and “good governance”.

In addition, in 2007, Cabo Verde signed a Special Partnership Agreement – a cooperation facilitation framework (unrelated to the Economic Partnership Agreement (“EPA”) under negotiation in the context of the Economic of West African States) covering a broad set of issues, from stability and regional integration to development and poverty reduction. It also concluded a Mobility Agreement with five European Union member States (France, Luxembourg, Netherlands, Portugal and Spain) allowing temporary and circular migration by Cabo Verdeans.

Cabo Verde also approached multilateral agencies, including the World Bank and the Bank African Development Bank, to ensure that it retained partial access to concessional financing (though at somewhat greater cost) through classification as a “blend” country. It also benefited from an additional three-year transitional period for access to the European Investment Fund (“EIF”), with a further two years subject to approval by the EIF Board.

2. Maldives

Like Cabo Verde, Maldives benefited from a three-year extension of trade preferences under the “Everything But Arms” initiative, until the beginning of 2014. However, it ceased to be eligible for GSP preferences at the beginning of 2014 (as a result of its classification by the World Bank as an upper-middle-income country for three consecutive years), compounding the effect of its loss of preferential treatment. The country also retained full access to EIF funds until 2013, and partial funding on a project-by-project basis for an additional two years, until the end of 2015.

3. Samoa

Since its graduation in 2014, Samoa continues to enjoy duty-free quota-free (DFQF) treatment under the “Everything But Arms” initiative for a period of three years. In addition, a similar transition period has been negotiated, at least for some key products, with other trading partners. China has agreed to extend zero tariff treatment on noni juice, fish exports and organic products such as honey, vanilla and cocoa.

Samoa also continues to enjoy access to concessional borrowing from multilateral financial institutions, and to receive technical assistance and financial support to attend United Nations meetings. As in other cases, the country has also been granted a three-year transition period by the EIF.

V. Potential transitional measures under the UNFCCC

In addition to the UN General Assembly resolution A/67/221, discussed above, two international reports provide further guidance for potential transitional measures under the UNFCCC.

Subsidiary Body for Implementation’s 2018 Report

 First, the Subsidiary Body for Implementation requested the secretariat to prepare a report on the provisions for support and flexibility provided to the LDCs under the Convention and the Paris Agreement and on how the provisions can assist the LDCs in making a smooth transition from LDC status. Such report was published on 20 April 2018: Provisions on support and flexibility for the least developed countries and the assistance thereof to a smooth transition from least developed country status.

Paragraph 26 of the report, dated 20 April 2018, refers to the United Nations General Assembly assessment of the implementation, effectiveness and added value of smooth transition measures, current international support measures for the LDCs that fall under the following three categories:

  1. Official development assistance;
  2. Trade-related measures;
  3. Other measures such as budget allocations to LDC-specific funding mechanisms, caps on LDC contributions to the budget and travel support.

According to the report, support measures for the LDCs under the Convention fall under the category listed in paragraph (c) above.

Paragraph 28 of the report lays out other ways by which the countries could be supported to continue to mobilize resources for climate change actions, given their special circumstances:

  1. Provision of more information on available channels for support for the implementation of the Convention and the Paris Agreement. It refers specifically to the UNGA resolution A/RES/67/221 already mentioned (in section III above), which recognizes the importance of making available information about LDC-specific support measures and related smooth transition measures in the areas of financial support, technical assistance and trade-related measures, including their time frames, characteristics and modalities;
  2. Capacity assistance with applications for donor support;
  3. Ways to leverage other partners for support, including the private sector.

Paragraph 29 of the report provides more examples of what form technical support to graduating countries may take:

  1. Extension of dedicated support by the LEG for a given period, upon request by the countries, including through case studies;
  2. Support for the consideration of climate change, in alignment with countries’ nationally determined contributions, in developing and implementing a graduation and transition strategy;
  3. Increased support for national institutions;
  4. Enhanced efforts on technology development and transfer.

On the specific issue of reporting, paragraph 30 of the report suggests providing specific support to the countries to take stronger leadership and ownership of their reporting requirements under the Convention and the Paris Agreement. We did not find any other forms of support relating to reporting obligations of graduating or graduated LDCs in other multilateral treaties.

Committee for Development Policy’s 2018 Report

Second, the Committee for Development Policy, in its 2018 Report and when discussing Kiribati’s status, recommended the creation of a category of countries facing extreme vulnerability to climate change and other environmental shocks that entitles them to receive support specifically targeting those vulnerabilities.

This link between extreme vulnerability and climate change was acknowledged by the Subsidiary Body for Implementation in paragraph 34 of its 2018 report, which recognizes that climate change aggravates structural impediments to sustainable development faced by the LDCs and the indicators used to identify the LDCs and considered that reducing vulnerability to climate change should therefore be seen as an integral element of the graduation and transition strategies of the LDCs.

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[1]           Current members states, participating since 19 April 1989, are: Bangladesh, Cuba, Ghana, India, Nigeria, Singapore, Sri Lanka, Tanzania, Zimbabwe. Additionally current members states are: Algeria, Argentina, Benin, Bolivia, Brazil, Cameroon, Chile, Colombia, Ecuador, Egypt), Macedonia, Guinea, Guyana Indonesia, Iran, Iraq, North Korea, South Korea Libya, Malaysia Mexico Morocco Mozambique, Myanmar, Nicaragua, Pakistan, Peru, Philippines, Sudan, Thailand, Trinidad and Tobago, Tunisia, Venezuela, Vietnam and the trade bloc of MERCOSUR.