WTO – Not a new Subject for Bhutan

WTO – Not a new Subject for Bhutan

Bhutan’s planned accession to the World Trade Organization (WTO) is not new. To join the World Trade Organization (WTO) or not was a decision Bhutan was struggling to make. And even as the country debated and weighed the pros and cons of joining WTO, representatives from various government departments and agencies involved in trade or trade related issues were trained on Capacity building on International Trade in the capital way back in 2012.

The training was funded by the Temasek Foundation Centre for Trade and Negotiation in Singapore as part of their technical assistance to aid development by increasing knowledge of trade negotiations and building capacity of the government and business leaders in Asia Pacific region to better participate in economic globalisation.

Bhutan applied for the World Trade Organization membership in 1999. In the following year, the country was granted the status of observer nation. Since then, Bhutan made a progressive achievement both at bilateral and international negotiations front with a few steps away from becoming a WTO member.

The accession process came to a halt when the government stressed on a broader debate on the advantages and disadvantages of joining WTO. In 2012, the Head of Temasek Foundation Centre for Trade and Negotiation in Singapore, Debora Elms said in terms of trade, Bhutan though a small country will gain equal rights among trading giants at the WTO.

Accession to the World Trade Organization (WTO) was also discussed during a workshop on Bhutan’s graduation from least developed country (LDC) status, held on 17-18 November 2015 in Thimphu, organized by the Government of Bhutan in partnership with the United Nations’ Development Programme (UNDP), Conference on Trade And Development (UNCTAD), Department of Economic and Social Affairs (UN-DESA), Economic and Social Council for Asia and Pacific (UNESCAP), and Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and the Small Island Developing States (UN-OHRLLS).

The Workshop discussed how membership to the WTO will benefit Bhutan, including enjoying the benefits of a multilateral trading system with WTO member countries as a most favored nation, and clarified wider implications of WTO membership, including:

•       Following the WTO mandate to ensure the country’s laws, regulations, and policies are non-discriminatory, transparent and consistent with WTO practice;

•       Pursuit of economic reforms and establishment of appropriate institutions; and

•       Compliance with over 150 provisions, including market access in agriculture and manufacturing, and enforcing safeguard measures protecting small economies.

According to expert recommendations, for Bhutan to fully maximize the market access it will gain upon entry into the WTO, the country will need to enhance and diversify its exports and lower trade-related transport costs.

UN experts during the Workshop also clarified the notion that Bhutan will lose LDC privileges owing to its graduation, emphasizing that the recently-adopted Sustainable Development Goals would support Bhutan’s transition.

In a paper titled “A Framework of Trade Policy for Bhutan Compatible with the Gross National Happiness, by the Asian Development Bank in 2015 includes a discussion on Bhutan’s accession to the WTO.  The following is what the paper had to say.

In principle, economic openness exposes a country to uncertainty and risks. However, this does not necessarily imply that a closed economic system is better. An open trading system is not the goal but a means to improve national welfare.

The issue may be the degree of openness. A large economy, which can exercise its market power on world prices, can pursue an optimum liberalization level. For smaller economies, unilateral liberalization is an optimal policy. If a country faces difficulties in reallocating resources across sectors, a gradual approach is desirable, while, at the same time, promoting capacity building to smoothen the structural adjustment.

The WTO Agreements have special and differential treatment provisions for developing countries. These special and differential treatment provisions include longer periods for implementing commitments, favorable safeguard measures, support for capacity building, and measures for increasing trading opportunities. 56. Unnecessary trade barriers need to be removed, while gradually lowering average tariffs. It should be noted that the WTO accession implies setting binding tariff rates and that Bhutan has some buffer between effective rates and binding rates. If tariff concession schedule is well adopted, no serious impact will hit Bhutan when it joins the WTO.

However, the effects of becoming a WTO member will be substantial, and business sectors will have to adapt to new environment to enhance national competitiveness. In addition, economic logic should be applied to enhance transparency and predictability. Most developing countries lack transparency and policy certainty, and tend to be exposed to political populism. Although they can upgrade their economic system, they tend to go back to older systems when ruling parties change. As a result, foreign investors, uncertain of the political effects of their FDIs, are reluctant to invest in these countries.

This is a more serious issue for small domestic markets. Developing countries should recognize this drawback and realize that investors will make unfavorable investment decisions. The WTO accession involves the rights and obligations of new members. WTO members can enjoy equal treatment (the most favored nation principle). Members must abide by the commitments agreed upon during the WTO accession. Regressive changes in laws and rules on trade are not allowed.

This works to reduce ad hoc populism that will violate the country’s commitments, about which other members can object. In this regard, some Bhutanese officials fear that WTO accession would impair their national sovereignty. International treaties are voluntary agreements for mutual gain, although some of the national sovereignty will be impaired owing to binding elements.

This accession has contributed to improving the business environment, leading to growth in international trade volumes and an improvement in welfare. It is not feasible for small countries to confront large economies bilaterally in trade disputes, but the multilateral trading system provides sound legal institutions to solve these problems. That is, even large economies must follow the guidelines laid down for solving trade disputes.

Economic reform is not easy, but WTO accession provides a chance to review the overall trading infrastructure systemically. Members are not obliged to accept all the WTO rules, and exceptions are allowed, depending on multilateral or bilateral negotiations. The government should review the gains and costs of WTO accession, and evaluate the net gains and compatibility with the GNH, considering the chance for economic reform.

In this regard, short-term costs of structural adjustments can be a plausible pretense for rejecting WTO accession. Rather, these costs should be assessed objectively in comparison with the dynamic gains that will be realized over time. Bhutan’s political decision pending the negotiations for WTO accession in 2009 should be reconsidered from the viewpoint of national interest.

WTO membership symbolizes transparency and predictability owing to the binding effects. The effects of upgrading regulations should be evaluated properly, rather than just pointing out minor problems. Bhutan should not make a one-sided decision, but should focus on what is best for the country.

Contributed by Tandin Wangchuk, Olakha