In the context of the preparatory process for the Fourth United Nations Conference on the Least-Developed Countries to be convened in Istanbul, Turkey on 9 to 13 May 2011, the United Nations Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) organized a special side event to the Second Committee on 15 October 2010, on “Enhanced International Support and Smooth Transition of LDCs towards Graduation”.
The event was chaired by H.E. Ms. Enkhsetseg Ochir, Permanent Representative of Mongolia to the United Nations and Chairperson of the Second Committee. Mr. Cheick Sidi Diarra, Under-Secretary-General, High Representative and Secretary-General of the Fourth UN Conference on LDCs, moderated the panel discussion. H.E. Mr. Abul Maal Abdul Muhith, Finance Minister of Bangladesh, delivered a keynote speech. The four panellists were: Prof. Patrick Guillaumont (CERDI, Université d’Auvergne (Clermont-Ferrand 1), France); Mr. Pierre Encontre (Chief of “Special Programmes”, UNCTAD Division for Africa, Least Developed Countries and Special Programmes); H.E. Mr. Ahmed Naseem (Minister of State for Foreign Affairs, Republic of Maldives); and Mr. Peter Thompson (Director for Development and Economic Partnership Agreements, Directorate General for Trade, Commission of the European Union). Concluding remarks, including recommendations arising from the interactive panel discussion, were provided by Mr. Diarra.
Significance of the Event
In her introductory remarks, H.E. Ms. Ochir underscored the timeliness of the event as it was crucial for the Committee to devote its attention to the substantive preparations for the forthcoming Fourth United Nations Conference on the Least Developed Countries. She drew attention to the main objectives of the panel discussion which were (i) to examine the slow progress made by LDCs towards achieving internationally agreed goals and graduating from the category, and (ii) to explore and recommend ways to strengthen international measures in the run-up to the Conference with a view to accelerating that progress and ensuring a smooth transition to post-LDC status. She particularly stressed the importance of making the transition from LDC status to post-graduation a prospect to be looked forward to.
As noted by Mr. Diarra in moderating the panel discussion, socio-economic progress had undoubtedly been achieved by LDCs especially during the past decade. However nearly half the population of these 49 countries -- some 800 million people in total -- continued to face conditions of absolute poverty and misery. The LDCs accounted for less than 2 percent of world GDP and about 1 percent of global trade in goods. A reflection of the continued marginalization of LDCs in the global economy could be found in the dismal number of LDCs - only two – that, as of October 2010, had graduated from the category since its establishment in 1971, with just a few approaching that stage in the near future.
The three decade-long development programmes for the LDCs had left an enormous amount of unfinished business, at a time when the triple global crises had critically exacerbated the LDCs’ vulnerabilities and imposed unsustainable pressure on their already weak MDG gains. Mr. Diarra recalled what had been repeated at the MDG Summit in September 2010, i.e. that there would indeed be “No MDGs without LDCs”. These countries lied at the epicentre of today’s development emergency and deserved the utmost attention and commitment by the entire international community.
It was exactly in order to tackle that emergency and to reinvigorate the international community’s pledge in support of LDCs’ development that the Fourth UN Conference would be held in Turkey in May 2011. The Conference, to which the entire UN system was deeply committed, would represent a major opportunity to deepen the global partnership in support of LDCs and set the terms of engagement for the next decade, bearing in mind that the ultimate objective of the global partnership for LDCs remained that of graduating from the category. The Conference was expected to adopt an ambitious, comprehensive, forward-looking, targeted, and results-oriented programme of action for the LDCs, together with the provision of additional international support measures in favour of LDCs based on a scaled-up partnership for development and effective arrangements for follow-up, review and monitoring of the implementation of the new programme of action.
In the national and regional reviews of the implementation of the Brussels Programme, LDCs had indicated that new programme of action should aim at fundamental structural transformation of LDCs’ economies by facilitating their beneficial integration into the global economy, building resilience against all kinds of internal and external shocks, enhancing long-term productive capacity, ensuring sustained economic growth, sustainable and inclusive development, and poverty eradication through such activities as creation of employment opportunities to secure full and productive employment and decent work for all, particularly youth, and by ensuring access of the poor and vulnerable to essential services including health, education, water and sanitation, energy, human settlement, and infrastructure development.
In terms of international support measures for LDCs, the duty-free/quota-free market access for LDCs and targeted levels of ODA were key. After ten years of implementation of the Brussels Programme of Action, a new generation of international support measures would be expected to not only strengthen long standing measures but go beyond them to cover areas such as adoption by development partners of outward investment promotion strategies through incentives and guarantees extended to their enterprises to invest in infrastructure and productive capacity in LDCs; adoption of flexible rules of origin that can also contribute to unleash the full potential of direct investments in LDCs; transferring and disseminating critical technologies, including those that could ensure access to essential services and have a pro-poor and green development impact; and supporting innovative sources for financing LDCs’ development, among others.
H.E. Mr. Abul Maal Abdul Muhith
, Finance Minister of Bangladesh, noted that the last three decades had brought very little change in the economic situation in the LDCs. The structural handicaps and constraints in their development efforts were still basically the same, and consequently, most of the commitments under the Brussels Programme of Action had remained unfulfilled. Reasons for this included the lack and unpredictability of financial inflows, LDCs’ high indebtedness; their vulnerability to both internal and external shocks and inability to cope with the magnitude and duration of the global economic and food crises as well as the impact of climate change. He also stressed that limited improvements made by the LDCs had not been rewarded by the needed external financial assistance in support of either the enhancement of their productive capacities or their achievements in terms of human development. Taken together all these factors were threatening the socio-economic progress made by LDCs that far.
Mr. Muhit put forward a strong call to reconsider the classification of LDCs according to their true nature and position in the world economy, therefore more appropriately reflecting their socio-economic situations and challenges, i.e. as the “vulnerable and fragile countries” group. He pointed to diversity with the current list of LDCs, where some were geographically disadvantaged, such as 17 landlocked and 11 small island developing LDCs. In addition, many of these countries were victims of climate change, a phenomenon that did not feature prominently in the previous programmes of action and which now made them “climatically disadvantaged”. For this special “vulnerable and fragile countries” group, the international community should draw up a different kind of programme of action, inclusive of an altogether new financing plan, perhaps a new financing institution as well as a new financing modalities.
In the context of the preparatory work for the Fourth UN LDC Conference, he suggested that the following issues be given importance in drafting the new programme of action: vulnerable and fragile countries; food production; social protection; development of infrastructure; human development, essentially in the areas of education, health and very importantly housing, equity and particularly prevention of growing inequality; adaptation and mitigation measures for climate change and management of economic migration. The latter deserved the highest priority, since climate change was expected to largely increase economic migration and thus entail relocation of entire population groups.
Mr. Muhit also underscored the importance of trade as an engine for development and provided the example of the development of the garment sector in his country, Bangladesh, which still faced high tariffs in the markets of some developed countries. Therefore he pointed to the imperative of concluding a development-friendly WTO Doha Round to counter LDCs’ marginalisation in global trade, supported by an enhanced Aid for Trade initiative that should particularly support the LDCs in addressing their supply-side constraints and erosion of preferences.
Finally, as for the issue of financing for LDCs’ development, he stressed that the new target for the next decade should be set at 0.2% of developed countries’ GNI, matched by a new criterion for allocation of ODA to the most vulnerable and fragile countries.
Prof. Patrick Guillaumont
on the reasons behind the very low number of countries achieving the goal of graduating from the LDC category. The category had been established with a view to mobilise support in favour of countries suffering the most from structural handicaps to growth. Therefore the category had been intended to assist the LDCs to overcome those obstacles and move « out of the trap ». A natural consequence should have been a decreasing number of countries locked into a trap, leading to a shrinking effect on the category. Prof. Guillaumont noted that, instead, only two countries had managed to escape that trap. Ineffective support measures and changes to the definition of the identification criteria had also contributed to those disappointing results.
Prof. Guillaumont recalled the criteria for inclusion in and graduation from the category
n order to be included, countries needed to satisfy three complementary criteria: a GNI per capita (fixed low income threshold set by the World Bank) and two composite indicators of structural handicap, namely the HAI (Human Assets Index), reflecting health and education levels, and the EVI (Economic Vulnerability Index), reflecting the risk of exogenous shocks and the exposure to these shocks. In order to graduate out of the category, Prof. Guillaumont pointed to four precautions that had been incorporated in the process to ensure the sustainability of socio-economic progress in LDCs beyond graduation and to avoid disruptive effects: (i) a country should fail to meet two, rather than only one, of the three criteria (asymmetry with the inclusion process); (ii) thresholds for graduation differed by a margin from those for inclusion; (iii) a country had to be found eligible at two successive triennial reviews by the Committee of Development Policy (CDP); and (iv) graduation would take place only three years after the adoption of the relevant resolution by the General Assembly. In addition: a country would become eligible for graduation when its income per capita was twice the ordinary graduation threshold. Exceptional postponements of graduation by 3 additional years had been endorsed due to the tsunami in the case of Maldives in 2005, and more recently in the case of Samoa. He also stressed that graduation was not an easy process: eligible countries were generally reluctant to graduate, which could result in lags in the decision process after the recommendation by CDP, either before a consensus at ECOSOC, or between the ECOSOC and General Assembly decision, such as in the case of Equatorial Guinea.
When pointing to the paradox where some countries resisted graduation, while others that were found eligible for inclusion refused to join the category, Prof. Guillaumont stated that at the core of LDCs’ concerns about graduation was the vulnerability issue. It was indeed a common feature of the great majority of countries that had recently graduated, were about to graduate or simply had been found eligible without being recommended, that they were SIDS. These countries’ concerns were mainly related to the fear of loosing LDC-specific preferential treatment, persistent high levels of economic vulnerability, and in some cases, long-term vulnerability to climate change. While improvements had been made by the CDP during the last 10 years in taking vulnerability into account through the design and refinement of the EVI criterion and the consideration of the vulnerability profiles prepared by UNCTAD, it was stressed that the recommendation for graduation had consistently applied to LDCs with a relatively high level of human capital and having been able to reach a medium level of GNIpc – therefore to countries that were clearly out of the low income trap.
However, two key issues remained, namely that of ensuring a smooth transition out of the category and the long-term exposure to the impact of climate change. Concerning the first issue, Prof. Guillaumont proposed making the transition smoother by using the LDC identification criteria as aid allocation criteria. This would conduce to aid allocation that would be fairer, since it would compensate for structural handicaps. In addition it would be more effective, since aid would be directly used to dampen the negative impact of shocks on growth; and more transparent, since this would avoid multiple exceptions to the rule. Most importantly, the proposal would smoothen the transition out of the category for graduating countries, since the vulnerability criterion would remain fully taken into account. The second issue was of major importance and of a rather long-term nature, although not necessarily LDC-specific. It was argued that an appropriate climate change vulnerability index needed to be developed, though doing so was expected to be rather difficult. Such an index could be used as a fair criterion of allocation of concessional resources for adaptation to climate change.
Mr. Pierre Encontre
on the steps that could be taken at national and international levels to bring the principle of “smooth transition” to fruition and make it beneficial. He recalled General Assembly resolution 59/209 that laid down a detailed UN framework for facilitating "smooth transition" strategies for the benefit of graduating countries. He clarified that after the adoption of the General Assembly resolution deciding on graduation of an LDC, a three-year grace period would start and graduation would take effect only after that. During the three-year grace period, the graduating country was expected to prepare an “exit strategy”, in cooperation with its development partners and with UN support. This essentially implied ensuring that the loss of LDC status at the end of the grace period, and the possible loss of LDC-specific concessions as a result of the loss of status, would not disrupt the country’s development efforts. Broad international support measures of smooth transition were identified by resolution 59/209, with a view to enabling graduating countries to delineate the scope of the phasing out of LDC-specific special treatment, therefore turning the fear of graduating into a challenge to look forward to.
He advocated that “smooth transition” measures should provide for a gradual elimination of special treatment to allow for “smooth landing” into post-LDC life, including trade preferences, technical assistance, development financing, as well as United Nations budget support. In the case of trade preferences, he praised the concrete measure adopted in 2008 by the European Union Commission to provide for at least a three-year continuation of Everything But Arms duty-free and quota-free market access to all graduated countries. Another important measure had been recently endorsed by the Board of the Enhanced Integrated Framework to extend by three years access to the programme (Tier 1 and Tier 2 funding) to graduated countries. A possible extension of additional two years might be considered on a case by case basis by the Board, but would need to be justified by the country in question. Along the same lines, he hoped that the WTO would also extend its technical assistance programmes to graduated countries. Furthermore, bilateral negotiations carried out during the grace period by individual graduating LDCs could lead to other smooth transition measures.
As for the special situation of small island LDCs, which by their geographic nature would be vulnerable indefinitely, he warned against pushing those countries through the graduation process too fast and without an appropriately supportive structure of smooth transition measures. In this respect it was stressed that, given the minute weight of LDCs in the global economy, prolonged support mechanisms should be set up systemically without considerable negative effects on more advanced countries. Finally, flexibility should be applied in the allocation of development-financing, based on the real problems and challenges of beneficiary countries, irrespective of their status.
H.E Mr. Ahmed Naseem
on the experience of Maldives as a graduating small island LDC. He stated that the current graduation criteria and institutional architecture were inadequate in dealing with the vulnerabilities of small islands.He described his country as a vivid example of the “island paradox”, whereby islands enjoyed relative prosperity owing to domestically-generated income, but remained vulnerable to external shocks and high structural costs due to their geography. Small island LDCs were among the least prepared to graduate from the category in the absence of smooth transition measures. The impact of environmental degradation on assessments of national income was particularly relevant to SIDS because their key productive capacities were inextricably linked to the natural environment and the durability of fragile ecosystems. He pointed to the fact that the Maldives had not once met the economic vulnerability criteria as proof that an LDC could be deemed eligible for graduation without being considered economically sound. High per-capita income in such countries often masked their high economic vulnerability and structural handicaps. He called on the international community to consider the limitations of the current special and differential treatment to developing countries, so clearly exposed by the “island paradox” and grant SIDS the full support they needed to cope with their special challenges.
Mr. Peter Thompson
presented the European Union’s efforts in support of “smooth transition” and hoped, in the context of the G20 development group, to see progress also by other development partners. He noted that the European Union had fulfilled its promise to grant full, duty-free and quota-free market access to all imports except for arms from all LDCs. New GSP rules of origin, to be officially applied as of 1 January 2011, would grant better access to preferential treatment within the European Union. In particular the LDCs would benefit from additional relaxation compared to non-LDCs. Among other, for textile and clothing, the origin rule would be single transformation for LDCs while remaining double transformation for all other beneficiaries.
He stressed that official development assistance should be effectively complemented by other sources of financing. The European Union had raised substantially its aid to LDCs from €7.5 billion in 2000 to €13.5 billion in 2009, thus reaching its collective commitment in line with the Brussels Programme to provide at least 0.15% of GNI to the LDCs. Individually, many EU Member States had already attained that target or were close to it. He cautioned however that such increase would not be sufficient on its own to help those in need achieve the Millennium Development Goals. He urged other donors, as well as emerging countries, to contribute their fair share of aid.
Mr. Thompson underscored the vast investments made by the European Union in implementation of its Aid for Trade Strategy that paid special attention to the LDCs, both in terms of bilateral contributions and support to the EIF. Furthermore, he drew attention to the benefits of regional integration as a stepping stone in the LDCs’ fuller integration into the world economy. Successful regional integration required strong institutions, sustained political will as well as a stable and predictable framework for business to prosper. He concluded by stressing the vital importance of the rules based trading system for LDCs and confirmed that the conclusion of the Doha Development Round in 2011 remained the EU top trade priority.
Interactive Debate Session
International support measures
Several representatives expressed their concern regarding the lag in the implementation of the commitment to provide full duty-free and quota-free market access for LDCs’ exports. Preferential schemes, such as the European Union’s ‘Everything but Arms’ initiative, as strengthened by the forthcoming relaxation of applicable rules of origin, were particularly appreciated. However, it was noted that the actual utilisation rate of preferential tariff treatment mattered and ultimately determined the effectiveness of the special support provided. Supply-side constraints should also receive priority attention through targeted support with a view to enhance productive capacities in the LDCs across crucial sectors such as agriculture, infrastructure and transfer of technology, therefore creating multiplier effects for the developmental process.
Delegations highlighted the persistent structural constraints faced by the LDCs and their extreme vulnerability to external and internal shocks, including the negative impact of climate change. These constraints should all be taken into account when designing support measures for LDCs, including “smooth transition” measures. Donors should also bear in mind that alternative financial resources, such as domestic resources, were limited in LDCs. The international community was called on to fully implement the Brussels Programme ODA commitments, as data showed that donors were still lagging behind. Several donor country delegations highlighted their own efforts to fulfil the Brussels Programme ODA target. Australia noted its promise to double its aid commitments over the next five years in order to attain the 0.15% of GNI target within that period. Finland elaborated that the LDCs constituted a core focus of the Finnish development efforts and confirmed having already reached the Brussels Programme ODA target. The special needs of geographically disadvantaged LDCs, such as small island and landlocked LDCs, were also highlighted given their high economic and environmental vulnerability, smallness and remoteness from international markets.
Delegations stressed the need to ensure a strong mainstreaming of the new programme of action to be adopted at the Fourth UN Conference on LDCs into the national development programmes already underway in LDCs as well as donors’ strategies. Adequate policy space should be afforded to LDCs for priority setting in their countries’ programmes and policy experimentation, while ODA allocation should be fully aligned to countries’ priorities.
Follow-up to the Conference
The majority of delegates underscored the need to establish strong follow-up mechanisms to the conference in order to monitor and evaluate the progress made in the implementation of the new programme of action.
Conclusions by the Moderator
Before closing the meeting, the Chairperson invited the moderator to provide summary conclusions of the interactive panel discussion, including main recommendations for the way forward.
briefly recalled that over the past 30 years the number of LDCs had doubled and that LDCs continued to be marginalized in the global economy. He added that major concerns relating to the issue of graduation were linked to fears of loss of preferential treatment in the areas of trade, technical assistance, development financing and UN budget support. While the principle of graduation should not be questioned and countries approaching that stage should prepare the ground well by designing appropriate transition strategies, new and concrete international support measures were urgently needed to ensure a smooth landing into post-LDC life and reassure graduating LDCs that their development efforts would not be suddenly disrupted.
Several proposals had been put forward by panellists and during the interactive debate on how to better support smooth transition and what could be expected from the Fourth UN Conference on LDCs. In order to better address specific vulnerabilities, a reclassification of LDCs had been proposed, however, he pointed out that targeted support measures could be provided to LDCs while maintaining the unity of the category as the group of countries most in need. The use of the LDC identification criteria, especially the economic vulnerability index, in ODA allocation had been discussed as a concrete and effective long-term smooth transition measure. The need for the creation of an indicator of environmental and climate change vulnerability was also underscored.
The importance of strengthening good governance and the rule of law at the national level was pointed out as necessary backbone to the effective ownership by LDCs of the new programme of action. The latter should be fully mainstreamed into LDCs’ national development strategies, supported by enhanced quality and quantity of aid aligned to national priorities. There was general consensus that the new programme of action should be comprehensive and results-oriented in its approach while focussing on key priorities for the LDCS’ next development decade and backed by an enhanced and more effective international support architecture. A strong monitoring and follow up system to ensure implementation of commitments by all stakeholders was also strongly needed.