Least Developed Countries have 13 years to meet global trade rules, but still lack critical flexibility at the WTO

By Rachel Thrasher, Researcher, Boston University Global Development Policy Centre

By only granting a 13-year extension in a critical time for economic recovery from COVID-19, Members of the World Trade Organization may be creating more severe challenges for Least Developed Countries and the global economy down the road.

Without much fanfare, on June 29, 2021, the member countries of the World Trade Organization (WTO) quietly agreed to extend the transition period for least-developed countries (LDCs) to implement the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) for another 13 years.

The recently granted extension falls substantially short of what was requested, though it is slightly longer than the previous two nine-year extensions. The news has received relatively little attention in the midst of negotiations for vaccine access and pandemic fears about new vaccine-resistant variants, but to be sure, the failure to acknowledge the need for a longer-term transition period has substantial impacts for LDCs’ development trajectories.

A critical request during a difficult time

In October 2020, Chad submitted an extension request on behalf of the group of LDCs in accordance with Article 66.1 of the TRIPS Agreement, which grants LDCs an automatic right to such an extension following their “duly motivated” request.

The TRIPS agreement aims to offer a minimal level of global protection for innovation in order to increase and incentivise creative research and new ideas. LDCs, however, tend to benefit more from the ability to imitate new knowledge than from the initial generation of innovation. Additionally, citizens in LDCs lack affordable access to knowledge-intensive goods essential for public health and sustainable development. The TRIPS transition period is therefore intended to provide LDCs the time and policy space to build up their skilled labour force, productive capacity and industrial development in order to take advantage of the TRIPS Agreement’s purported benefits.

Historical context

In 1995 following the creation of the WTO, LDC members were granted an initial ten-year transition period for implementation of the TRIPS Agreement, with an automatic right of further extension. The extension grants LDCs exemption from implementing most TRIPS obligations in view of their special needs and requirements, including their economic, financial and administrative constraints, and their need for flexibility to create a viable technological base for their own innovation.

The general transition period was originally due to expire on December 31, 2005, but it has since been extended twice following requests from LDCs. Each time, however, the full demands of LDCs have not been met, with high-income WTO members only willing to give impractically short extensions. The previous transition period extension granted in 2013 officially expired on July 1, 2021. Chad’s request sought to establish an open-ended extension for all LDCs as long as they remain in that category, as well as a 12-year period following graduation from LDC status.

Why it matters

The LDCs’ request admittedly exceeded what has been granted in the past both because it lacked an end date and extended to countries even after they would graduate from LDC status. The COVID-19 pandemic, however, has shown LDCs and others need longer-term access to policy flexibilities to meet the needs of their constituents. The United Nations Conference on Trade And Development (UNCTAD) Least Developed Countries report highlights the particular difficulties facing LDCs during and after the pandemic, and for many, the dire situations that are projected to worsen. UNCTAD estimates extreme poverty will expand by more than 10 percent, with nearly all LDCs projected to experience a decline in average income and current account deficits to widen from 41 percent to 61 percent. These economic troubles will be exacerbated by a further contraction of low GDP per capita in many LDCs this year as COVID-19 continues to decimate economies.

The COVID-19 pandemic has also resulted in a precipitous fall in foreign direct investment and remittances for vulnerable economies. Constrained fiscal space has further shrunk, making it difficult to provide the financial safety nets needed to protect their constituents. The UN Inter-agency Task Force on Financing for Development predicts a lost decade for development worldwide, with the brunt of that to be borne by LDCs.

An uncertain future

Despite support from international experts, the full request was denied.

By refusing to grant the full extent of the LDCs’ request, developed countries are yet again “kicking away the ladder” – the same ladder that even today’s highest income countries deployed during their early years of development. According to reports of Bangladesh’s statement to the TRIPS Council that day, of the small handful of LDCs who have successfully graduated, most have shown that they were not able to effectively build up a technological base in order to “meaningfully integrate” into the global economy.

As developed countries begin to climb out of the throes of the pandemic, it is essential that they extend the ladder to the nations struggling to recover from the economic, health, and social impacts of COVID-19. Additionally, future consideration of the LDCs’ request should note the challenges of industrial development these countries face and acknowledge the critical role of policy space in overcoming those challenges. As the UN prepares for the 5th LDC Conference in Doha, it is critically important that the international community better understands the realities of LDC vulnerability and the importance of strengthening productive capacities for graduating LDCs and beyond.