The World Trade Organization and trading with developing countries
Financial help, trade agreements and reduced duty tariffs for businesses trading with developing countries.
There are many opportunities for small businesses in developing countries. Exports to developing countries may be eligible for aid finance and imports may benefit from preferential UK and EU customs duties under the Generalised System of Preferences (GSP). Small businesses can also trade with developing countries as subcontractors to larger businesses.
The World Trade Organization (WTO) sets a global trading framework for its 153 member countries, two-thirds of which are developing countries. The WTO’s open market policies have led to changes in the EU’s main trade and aid agreement with 79 developing countries - the Cotonou Agreement. The WTO has also recognised the need to make greater provision for developing countries and also for small business.
This guide covers the main WTO agreements and special measures affecting developing countries - the changes to the Cotonou Agreement - to aid finance and developing country debt, and explains how the GSP works.
How developing countries work within the WTO
The WTO has reached several agreements to reduce and eliminate barriers to global trade, including:
- the General Agreement on Tariffs and Trade (GATT - goods)
- the General Agreement on Trade in Services (GATS)
- the Trade-Related Aspects of Intellectual Property Rights (TRIPS)
- dispute resolution between member governments
- specific product/service and exporter/importer agreements
The WTO also allows developing countries and ‘least developed countries’ (LDCs) to adapt more slowly to free trade.
There are 50 LDCs as defined by the UN - 32 of which are WTO members. These include self-defined developing countries, and two of the world’s largest economies - China and India.
These developing countries have successfully agreed certain changes in WTO agreements, including:
- a programme of Technical Assistance and Capacity Building - for which the UK has pledged £45 million
- a change in the TRIPS rules on patented medicines to allow developing countries to use cheaper medicines under certain circumstances
There are also other changes being considered by the WTO that would benefit developing countries, such as:
- special measures for LDCs and small economies
- changes to the relationship between trade, debt and finance
- the possibility of technology transfers
- the relationship between patents and development
There are also some issues which have not been resolved due to disagreements between developed and developing countries. These issues include:
- agricultural commodities and subsistence farming
- trade, debt and finance
- the lack of safeguard mechanisms for developing countries during an economic crisis
WTO agreements and their changes have created a vast range of new business opportunities. Rules preventing special help for small business in public procurement - including development aid contracts - have been effectively removed in the EU and other developed countries, allowing many opportunities in these markets.
Economic Partnership Agreements
Economic Partnership Agreements (EPAs) are development friendly trade agreements between the EU, its member states and African, Caribbean and Pacific countries (ACPs). EPAs are reciprocal Free Trade Agreements building on the Cotonou Agreement to enable a type of agreement that is compatible with the World Trade Organization trade agreement principles. They provide:
- duty and quota free access to EU markets
- long transition periods for developing countries to open up their markets
- safeguards that allow countries to protect vital products
EPAs also encourage regional integration by reducing trade barriers within the ACP regions.
The following countries currently benefit from duty-free, quota-free access for ACP exports into EU markets:
- Caribbean Forum of Caribbean States (CARIFORUM): Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines, Suriname, Trinidad and Tobago
- Common Market for Eastern and Southern Africa - COMESA: Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Lybia, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe
- East African Community: Kenya, Tanzania, Uganda, Rwanda and Burundi
- East and Southern Africa - ESA: Zimbabwe, Seychelles, Mauritius, Comoros, Zambia and Madagascar
- Southern African Development Community - SADC: Angola, Botswana, the Democratic Republic of Congo, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe
- Pacific Islands Forum - PIF: 14 island states, the biggest of which are Papua New Guinea and Fiji
- West Africa: All 15 members of ECOWAS - the Economic Community of West African States, Ivory Coast and Ghana
- Central Africa: All members of ECCAS - the Economic Community of Central African States as well as the Democratic Republic of Congo, Sao Tome and Principe, Cameroon
Changes in Aid for Trade
Aid for Trade for developing countries aims to support:
- national economic growth and competitiveness
- work to reduce poverty through trade
- strengthening and integration of regional trade
- an international system that will bring development to ‘least developed countries’ (LDCs)
An aid-funded contract can be a good way for you to start doing business with a developing country. Aid funding reduces the risk of not getting paid, and aid donors - such as the EU and World Bank - have offices in the recipient countries to help you. Opportunities can vary from consultancy to the supply of goods and services.
UK Trade & Investment can give details of aid agencies and how to find - and win - aid-funded business. It can also provide special support to small businesses.
How the GSP works in practice
If you trade with developing countries, you need to know how the GSP works in order to find out what UK customs tariffs and rules of origin apply.
The GSP is set by the EU and provides 176 developing countries with a reduction in EU import tariffs. These developing countries are not expected to offer the EU tariff reductions in return. The GSP has three programmes:
- The standard GSP provides preferences to 176 developing countries and territories
- The GSP+ offers additional incentives to encourage vulnerable developing countries to apply international agreements on human rights, employment conditions, the environment, sustainable development and good governance
- The Everything But Arms (EBA) arrangement provides duty-free, quota-free access for all products except arms from the 50 least developed countries (LDCs)
You need to ensure that your imports from developing countries are accompanied by the right paperwork, especially the certification of origin. If you export goods to a developing country to be processed and re-imported into the EU, then the goods can benefit from outward processing relief (OPR) as well as the GSP.
You should note that any list of beneficiary countries is rather a list of potential beneficiaries, since some countries may not meet the conditions to actually benefit from GSP. Some countries may be temporarily suspended and others may not yet have complied with the administrative cooperation requirements, which are a pre-condition for goods to be granted the benefit of tariff preferences. If in doubt, your competent authorities will advise you.
UK Trade & Investment Aid Funded Business Service
0845 603 0084
020 7215 5000
Published: 2 August 2012
Updated: 13 June 2013
- Fixing references to specialist guides
- First published.
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