RESTRICTED
WORLD TRADE WT/COMTD/LLDC/4
22October 1996
ORGANIZATION(96-4413)
Sub-Committee onLeast-Developed Countries
Fourth Session
NOTE ONTHE MEETING OF23SEPTEMBER 1996
Interim Chairman: Mr.Nacer Benjelloun-Touimi (Morocco)
A. Adoption oftheAgenda
1. TheCommittee adopted thefollowing agenda:
A. Adoption oftheAgenda
B. Trade andDevelopment Activities ofIntergovernmental Organizations
C. Other Business
- Report oftheSub-Committee totheGeneral Council
2. TheChairman saidthatthemeeting would principally dealwithtradeanddevelopment activities
ofintergovernmental organizations. Hewelcomed theparticipation ofMessrs Mohammed ElKabbaj
andRenato Ruggiero, Chairman oftheJoint IMF/World Bank Development Committee andthe
Director-General ofWTO, respectively inthismeeting. Healsoextended awelcome torepresentatives
ofleast-developed countries (LLDCs) whohadcome from European capitals toparticipate inthis
meeting. Hethanked theNorwegian Government forsetting upatrustfundintheWTO, outofwhich
thetravel andrelated expenses oftheofficials were financed.
B. Trade andDevelopment Activities ofIntergovernmental Organizations
3. TheChairman recalled that,atthemeeting oftheCommittee onTrade andDevelopment (CTD),
hehadcommented ontheroleplayed bytheCTDasthefocalpointintheWTO fordevelopment-related
matters including relations withinstitutions concerned withdevelopment. Theparticipation inthe
meetings oftheCTD andtheSub-Committee byH.E. Mr.Mohammed Kabbaj wasevidence ofthe
pivotal roleplayed bytheCTD. Thismeeting wasofparamount significance, asitwasasteptowards
fulfilling theprovisions oftheMinisterial Declaration onWTO 'sContribution toAchieving Greater
Coherence inGlobal Economic Policy-Making. Hesaidthatthisafternoon 'sdialogue between Members
oftheSub-Committee, theDirector-General andChairman oftheJointIMF/World Bank Development
Committee, presented aunique opportunity toexplore possibilities forenhancing cooperation between
theJoint Development Committee andtheWTO.WT/COMTD/LLDC/4
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4. Itwasclearfrom theprevious meeting oftheSub-Committee thatdelegations wanted tosee
astrengthened relationship between theWTO andtheBretton Woods institutions. Zambia specifically
requested foranintensification ofthecoordination between thethree institutions sothattheycould
together devise appropriate policy responses toalleviate poverty inLLDCs. Bangladesh urged the
adoption ofmeasures which would encourage investment flows toleast-developed countries. For
technical cooperation toremain relevant hesaidthat, itshould befocused onstrengthening the
institutional andhuman capacities ofLLDCs. Singapore suggested thattheWTO work closely with
those OECD andASEAN countries, whohadappropriate technical cooperation programmes. He
suggested thattheSub-Committee adopt aPlanofAction forLLDCs andpresent concrete proposals
toMinisters inSingapore inorder toenable themimplement policies which would assist intheeffort
toreverse themarginalization ofLLDCs inthemultilateral trading system.
5. TheChairman reported progress inhisconsultations ontheproposed PlanofAction forLLDCs.
Themainelements ofthePlanwereimproved market access forLLDCs, implementation ofUruguay
Round results, improved technical assistance programmes tostrengthen theinstitutional andhuman
capacities ofLLDCs andtheadoption ofmeasures which would improve thedomestic macro-economic
framework. Theimplementation ofsome ofthese measures required acoordinated approach between
theWTO andother international organizations, including theWorld Bank, IMF, UNCTAD andother
United Nations agencies. Interms ofmarket access, forexample, itwasimportant forLLDCs to
increase theirexports andtakeadvantage ofthemarket access opportunities provided bytheUruguay
Round, iftheywere tobenefit from debtrelief measures implemented bytheBank andtheFund.
Instead ofusing theirlimited export earnings toservice theirdebts, theycould usethemforproductive
ventures which would assist themtoachieve asustainable levelofdevelopment. Expanding production
meant thatLLDCs hadtobeassisted tobuilduptheircapacities. Effective implementation oftechnical
assistance programs including elements relating tohuman andinstitutional capacity building for
development required acoordinated approach between therelevant international organizations.
6. TheChairman saidthatitwasnecessary forLLDCs tohaveastable andinvestment-friendly
climate,iftheyweretobeabletotakeadvantageoftheopportunitiesprovidedinsomeWTOAgreements
toattractforeigndirectinvestment.Theremovalofsupply-sideconstraintswasimportantinthatrespect.
Hestressed theneedforenhanced collaboration between theWTO, theBank andtheFund intheareas
ofdebtrelief, investment, strengthening ofproduction capacities andtechnical cooperation, andreferred
totheproposals made bytheDirector-General oftheWTO atLyon. Theproposals, hesaid,revolved
around threeelements: duty-free market access forallproducts ofexport interest toLLDCs; adoption
ofmeasures which would channel foreign direct investment toLLDCs; improved andtargeted technical
assistance tostrengthen theinstitutional andhuman capacities ofLLDCs andeffective cooperation
between theWTO andother relevant international institutions including UNCTAD, ITC, theWorld
Bank andtheIMF.
7. TheChairman oftheJointIMF/World Bank Development Committee saidthathewasgoing
tospeak about recent initiatives todealwiththedebtcrises facing themostindebted andimpoverished
countries intheworld. TheWorld Bank andtheIMFhadrecognised thatthedebtburden ofmany
poorcountries hadbecome intolerable, andonlyacomprehensive andintegrated approach involving
allthemajor actors could resolve thislong-standing problem. Themajor creditors -multilateral,
bilateral, Paris Club(official government debt) would beexpected under theplantoshare thecosts,
estimated atbetween $5.6billion and$7.7billion. Theplansetsathreshold fordebtsustainability
at20-25 percentfortheratioofdebt-service toexports, and200-250 percentfortheratioofdebt
toexports. Countries which remain above thethresholds afteraspecified period oftime, despite
adherence tosound policies andfulluseofexisting debtrelief mechanisms, would becharacterised
ashaving anunsustainable debtburden, andtherefore eligible forassistance under theplan. AccordingWT/COMTD/LLDC/4
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toarecent analysis, aminimum ofeightcountries andamaximum oftwenty countries would beeligible
under theplan.
8. Theinitiative would havetwostages. Thefirststagewould basically follow existing conditions
forParis Club rescheduling, which already requires athree yeartrack record ofreform. Ifthedebt
situation ofthecountry improves inthesense thatitbecomes sustainable, itwould notbeeligible under
theplan. Ontheother hand, ifthecountry 'sdebtsituation improves butnottothepoint where itwould
besustainable, relief intheformoffurther rescheduling could beprovided pursuant totheNaples terms.
Ifthesituation ofthecountry doesnotsignificantly improve soastoassure sustainability inthefuture,
theBank andtheFund would intervene during thefollowing threeyearperiod (stage two)andsupport
thecountry initsefforts toundertake abroad-based programme ofmacro-economic andstructural
reforms, which would leadtoacomprehensive treatment ofitsdebts. Bilateral andcommercial creditors
would provide assistance withaviewtoreducing thesizeofthedebttoasustainable levelbytheend
ofthesecond stage. Suchrelief onflowandstock rescheduling byParis Club creditors could reach
80-90 percentwhen necessary, compared tothemaximum 67percentcurrently available. Other
bilateral andcommercial creditors would endeavour toprovide atleastcomparable treatment. Ifthe
country 'sdebtsituation doesnotimprove attheendofthesecond stage, themultilateral institutions
would takeadditional stepsincluding providing newfinancing toeasetheburden ofdebtwiththeview
ofensuring thatitreaches asustainable level. TheChairman thanked Minister ElKabbaj forhisbrilliant
anduseful statement.
9. TheDirector-General oftheWTO welcomed theparticipation ofMinister ElKabbaj inthe
meeting oftheSub-Committee, andsaidthatthisdemonstrated thattherelevant international institutions
including theWTO, IMFandtheWorld Bank wereworking together ontheproblems ofdeveloping
countries, especially theleast-developed onesamong them. Hethanked Ambassador Benjelloun for
drafting aPlanofAction forleast-developed countries (LLDCs), andsaidthathehadraised theissue
ofthemarginalization ofthesecountries inthemultilateral trading system withtheleaders oftheseven
mostindustrialized nations (G7)during theirrecent meeting atLyon. Theleaders agreed thatpositive
measures needed tobeadopted tofacilitate theintegration ofthesecountries intothemultilateral trading
system andtheglobal economy. Tothatend,theywerestudying theproposals hemade atLyon to
assist LLDCs. Hewasconfident thattheissue ofLLDCs would begiven toppriority atSingapore
byMinisters. Hementioned thathewould beaddressing theJoint IMF/World Bank Development
Committee thefollowing week, andwould befocusing onthepreparatory work thatwasbeing done
asregards theissues thatneeded tobeaddressed attheMinisterial Conference, including theintegration
ofLLDCs intothemultilateral trading system.
10. Hestressed theneedtooperationalize andfollow-up ontheDecision onMeasures inFavour
ofLeast-Developed Countries .Hesaidthathisproposal thattheexports ofLLDCs begiven duty-free
treatment andexempted fromquotas andanyother restrictions wasimportant, asitcould provide the
necessary impetus tothecurrent international effort toreverse themarginalization ofLLDCs inthe
multilateral trading system andtheglobal economy. Hestressed theneedforexploring avenues to
increase theflowofforeign investment toLLDCs. Henoted thatdeveloping countries asagroup
received about one-third ofworldwide foreign direct investment, butoutofthisfigure about 80percent
wenttoonlytencountries.Theinequitabledistributionofforeigninvestmentamongdevelopingcountries
wasachallenge which needed tobeaddressed; therewasaneedtoadopt measures which would ensure
thatalldeveloping countries received foreign direct investment commensurate withtheirneeds. To
thatend,hesuggested thatnegotiations should commence onanappropriate multilateral framework
forinvestment. Lastly, hestressed theneedforbroader relations andcoordination withalltherelevant
international organizations. HesaidthattheWTO hadstrengthened itsrelations withUNCTAD and
ITC, andhadimplemented ajointtechnical assistance programme forAfrica withthem. Hefurther
saidthattheWTO wasintheprocess ofconcluding formal agreements withtheIMFandtheWorldWT/COMTD/LLDC/4
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Bank withaviewtostrengthening therelations between them. Hesaidthatnegotiations wereatan
advanced stage withtheBank toimprove thewaythattechnical assistance wasdelivered toLLDCs.
Thetwoinstitutions wereexploring hownewtechnologies could beusedtodeliver assistance toawider
audience ataverycompetitive cost.Concluding, hesaidthathewasconfident theissueofthefacilitation
ofLLDCs intothemultilateral trading system would becentral tothepreparatory workfortheSingapore
Ministerial Conference. TheChairman thanked theDirector-General forhisdedication tothecause
ofdeveloping countries, especially theleast-developed onesamong them.
11. Therepresentative ofTanzania thanked theChairman andtheDirector-General fortheirefforts
toincrease theparticipation ofdeveloping countries inthemultilateral trading system. Hethanked
Minister ElKabbaj forexplaining theimportant elements oftheWorld Bank/IMF Debt Initiative.
Henoted thathiscountry, Tanzania, wasoneoftheeligible countries under theinitiative, asitwas
heavily indebted. Whereas theinitiative wastobewelcomed initspresent form, some elements could
probably berefined fortheheavily indebted countries. Hewasoftheviewthattheeligibility criteria
could bemade more flexible tobenefit other countries whohadanunsustainable debtburden. The
waiting period ofthree tosixyears wastoolong, andneeded tobere-evaluated. Heasked Minister
ElKabbaj whether theDevelopment Committee hadanyintention ofaddressing thisissueinthefuture.
12. Turning tothestatement oftheDirector-General, hesaidhefound itveryilluminating and
shared most oftheideas expressed byhim. He,however, wanted tocomment oninvestment. He
agreed withtheDirector-General thattherewastheneedtoincrease investment flows toleast-developed
countries, asitcould helpthemrejuvenate theirindustry andfacilitate theirintegration intotheworld
economy. Theneedforforeign direct investment hasbecome veryurgent because ofdwindling flows
ofOverseas Development Assistance andother sources oftraditional finance. Thecrucial question
which needed tobeaddressed washowtoassist LLDCs toattract investment. Attempts hadbeenmade
byvarious scholars andinstitutions including theWTO toaddress thisparticular question. Political
instability hasfrequently beengiven asoneofthereasons whyLLDCs donotattract investment. He
wasindoubt astowhether thiswasaprincipal reason whyLLDCs were notreceiving investment.
Tohim,itwasnotevenanissue, aswiththeexception ofafewcountries, mostLLDCs enjoyed political
stability. Thisledhimtothink thatother reasons weretobeblamed forthemarginalization ofLLDCs
inworldwide investment flows. Hewasalsocritical oftheviewthatLLDCs havenotbeenadopting
therightpolicies. Most, hestressed, hadadopted structural adjustment reforms devised bytheFund
andtheBank. Iftheadoption ofthesepolicies havenotmanaged toincrease investment flows toLLDCs,
thenthereasons mustliesomewhere else. Forhim,themainmitigating factors werethelackofproper
infrastructural facilities andsupply-side constraints. LLDCs could dealwiththese problems onthe
condition thattheirdevelopment partners provide themwiththerequired assistance. Iftheinternational
community should assist LLDCs inremoving theirsupply-side constraints, thenhewasconfident that
theywould beabletoreceive abigger sliceofworldwide investment flows. Heagreed withthe
Director-General thatthere wastheneed tohave acomprehensive analysis ofmatters relating to
investment. TheChairman thanked therepresentative ofTanzania forhisstatement andreminded
delegations thattheissue ofinvestment wascurrently being considered bytheInformal Heads of
Delegations Group. TheDirector-General saidthatanumber ofreasons weretobeblamed forthe
disproportionate share ofLLDCs inworldwide investment flows. Hehadnoillusions thataMultilateral
Agreement onInvestment would reverse thetrend, butitwould certainly reduce transaction costsand
guaranteecertaintyandpredictability.TheproblemsofLLDCsrequiredanintegratedapproachinvolving
allthemajor institutions including theWTO, UNCTAD, ITC, World Bank, IMFandUNDP, and
alsothecountries themselves.WT/COMTD/LLDC/4
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13. Therepresentative ofBangladesh thanked theprevious speakers fortheir veryinteresting
statements. Herecalled thatattheprevious session, thediscussion centred onhowtoadopt specific
measures toassist andfacilitate theexpansion oftheLLDCs 'tradeandinvestment opportunities, with
aviewtoenabling them toachieve theirdevelopment objectives. Heagreed withTanzania thatthe
crucial question washowtoassist LLDCs toincrease theirintake offoreign direct investment. He
alsoagreed withtheprognosis provided byTanzania andtheDirector-General thattherewastheneed
tostrengthen theinstitutional andhuman capacities ofLLDCs withtheview ofassisting them to
effectivelytackleandremovethesupply-sideconstraintsthathavepreventedthemfromtakingadvantages
ofthebenefits oftheUruguay Round. Given thecomplexity oftheproblems facing LLDCs, there
wastheneedtoagree onaplanwhich would setshort, medium, andlong-term goals.
14. Hesaidthatthelinkbetween trade anddevelopment wasaxiomatic; trade wasanessential
prerequisite fordevelopment, whilst thelevelofdevelopment inturndepended upon expansion and
diversification oftrade. Itwasbecause ofthislinkthattrade anddevelopment issues needed tobe
dealtwithinanintegrated andcomprehensive manner. Heagreed withtheDirector-General thatLLDCs
hadacrucial roletoplay, iftheywere tobeintegrated intothemultilateral trading system andthe
global economy. LLDCs wereconscious ofthatfactandhadimplemented wideranging reforms to
improve themacro-economic situation intheircountries. Inmostcases, these structural adjustment
programmes hadfailed todeliver anyresults. Itwasclearthatwithout averysupportive international
environment, itwould bedifficult forthese countries toachieve sustainable economic growth. He
called ontheinternational community toadopt supportive measures which would alleviate poverty,
andfacilitate capacity building andsustainable development. Hespecifically called forfulfilment of
aidtargets; measures which would increase investment flows toLLDCs; cancellation orreduction
ofdebts owed byLLDCs; andcompensation forlosses suffered duetoerosion ofpreferences inthe
aftermath oftheUruguay Round.
15. Integrating LLDCs intothemultilateral trading system would necessarily require combined
efforts andactions ofdonors, recipients andtheinternational andintergovernmental organizations.
Therelevant organizations could carry outin-depth studies ontheproblems ofLLDCs andimplement
therequired measures including theprovision offinancial assistance andtargeted technical assistance.
Urgent measures should beimplemented todealwiththedebtproblem, which hasconstrained theability
ofLLDCs todiversify theireconomies andincrease theirexports. Theorganizations could encourage
dialogue between donors andrecipients, andplaytheroleoffacilitators inimportant areas critical to
thedevelopment oftheeconomies ofLLDCs. TheIMFandtheWorld Bank haveanimportant role
toplayinthisprocess. Itwould beextremely helpful todrawupspecific suggestions andpresent them
toMinisters atSingapore, soastoenable them toadopt theappropriate policy responses.
16. Therepresentative ofEgypt thanked theprevious speakers fortheirstatements andNorway
foritsgenerous financial contribution which made itpossible forsome LLDCs toparticipate inthis
meeting. Hewelcomed therepresentatives ofthose LLDCs, andsaidthatitwasimportant forLLDCs
tobeabreast ofdevelopments intheWTO. Hisdelegation found Minister ElKabbaj 'sstatement on
therecent debtinitiative oftheWorld Bank andIMFveryinteresting. Heagreed withtheDirector-
General thatglobalization could notbeblamed forthemarginalization ofmany developing countries.
However, itwasalsoworrying toknow thatAfrica onlyreceived 1.5percentofworldwide foreign
direct investment, eventhough ithad12percentoftheworld 'spopulation. Theshare ofAfrica in
world trade wasalsonotimpressive; itwascurrently below 2percent. Itwasevident thatAfrica
hadbeenmarginalized,andtherewastheneedtoadopteffectivemeasurestoreversethismarginalization.
Globalization wasadouble-edged sword; ontheonehandithadpresented alotofopportunities for
countries tomaximise theircitizens 'welfare, butontheotherhand, ithadmarginalized countries which
werenotcompetitive andhadnotadapted tothechanging realities. Heagreed withtherepresentative
ofBangladesh thatconcrete recommendations should bepresented toMinisters atSingapore.WT/COMTD/LLDC/4
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17. Therepresentative ofNepal thanked theChairman fororganizing thismeeting, andtheprevious
speakersfortheirinterestingstatements.ThestatementbyMinisterElKabbaj'sexplainingtheintricacies
oftherecent debtinitiative oftheWorld Bank andIMFwasveryhelpful. Hesaidthathisdelegation
wasinterested inparticipating intheconsultations currently underway inpreparation fortheSingapore
Ministerial Conference. Hethanked theDirector-General fortheboldinitiatives thatheoutlined at
Lyon toincrease thetrade andinvestment opportunities forLLDCs. Measures which hadbeen
implemented inthepasthadfailed toimprove thesituation ofLLDCs, sothere wastheneedtoadopt
measures which would reverse thissituation. Theproposals made bytheDirector-General werepositive
inthatregard, asitcould improve thecompetitivity ofLLDCs. Heurged thefullimplementation
oftheDecision onMeasures inFavour ofLeast-Developed Countries.
18. TheChairman oftheJoint IMF/World Bank Development Committee, inresponse tothe
clarification sought byTanzania, saidthattheeligibility criteria wasstillunder review. Adecision
regardingthetime-framecouldbetakenattheforthcomingmeetingoftheCommittee.Hewasoptimistic
thatthecriteria would beflexible andapplied onacase-by-case basisdepending, among other things,
ontheresults ofthestructural adjustment programmes undertaken bythecountry.
19. TheChairman wasoftheviewthatMembers should beopentothediscussion oftheinvestment
issue, asitwasextremely important. Heproposed asafirststepananalysis oftheprovisions ofexisting
bilateral andplurilateral accords oninvestment. Based ontheresults ofthestudy, further studies could
beinitiated todetermine whysome countries hadbeensuccessful inattracting foreign direct investment.
Theestablishment ofaWorking Party intheWTO would notnecessarily mean thatthere would be
aMultilateral Agreement onInvestment. Since itwould require afurther decision byMinisters, the
concerns ofsome countries were misplaced. Discussion oftheissue could either commence inthe
WTO orUNCTAD providing there wasnoduplication. Theapproaches ofthetwoinstitutions was
bound tobedifferent, astheissuewasascomplex asitwasinteresting. Hementioned thathiscountry,
Morocco, wascontemplating organizing ameeting oninvestment withthecooperation ofUNCTAD.
Thatdidnotmean thattheissue could notbediscussed concurrently bybothinstitutions. Theonly
thing which hadtobeavoided wasaduplication offunctions. Thetwoinstitutions could work together
onthisissue witheachplaying apositive role.
20. TheChairman saidthatitwasimportant fortheSub-Committee tostayfocused andaddress
theproblems ofLLDCs bearing inmind whatwasachievable. ThePlanofAction, hethought, was
astepintherightdirection. Even ifitsimpact would notbeimmediate, itwould overtimeincrease
thetrading andinvestment opportunities ofLLDCs. Hewashopeful thatagreement could bereached
ontheelements ofthePlanbefore thenextmeeting, which wasscheduled for15October 1996.
C. Other Business
21. TheChairman recalled thathehadindicated during themeeting oftheCTD thathewould
bepresenting adraft report totheGeneral Council. Thedraft, which would bemade available to
delegations shortly, contained asection ontheactivities oftheSub-Committee thisyear. Heindicated
thathewould becarrying outconsultations withdelegations withtheviewofsecuring agreement on
itscontents.
22. Themeeting wasthenadjourned.