LDC Graduation and its Impact

KATHMANDU: The United Nations Committee for Development Policy (CDP) has recommended for Nepal’s graduation from the Least Developed Country (LDC) category with preparatory period of five years.

This means that the graduation of Nepal would be effective in 2026 and with this recommendation of UN CDP, pros/cons of LDC graduation has become an issue of concern for many.

Let us look into it. When a country graduates from the LDC category, it no longer benefits from LDC-specific international support measures.  The practical implications and significance of that change depend on numerous factors, and thus differ among countries.

When a country meets the graduation criteria for the first time, the United Nations Department of Economic and Social Affairs prepares assessments of the expected effects of graduation. These reports, referred to as “Impact Assessments”, are one of elements on which the Committee for Development Policy (CDP) will base its decision on whether to recommend the graduation of these countries to the Economic and Social Council (ECOSOC).

– What will be the impact of graduation on preferential market access?

One of the main support measures for LDCs is preferential access to markets. The actual impact of losing LDC-specific preferences depends on what goods the country exports, the trade agreements it may be a part of and other factors. Impact Assessments compare the tariffs applicable to the country’s major export and potential export products before and after graduation. While in some cases the loss of LDC-specific preferences may have significant impacts on the tariffs faced by a country’s exports, in others the impact may be null or marginal. This is the case, for example, when the Most Favoured Nation (MFN) tariffs for a country’s main exports is zero in the most important markets.

– What happens in terms of WTO commitments?

Leaving the LDC category will mean the country no longer benefits from LDC-specific special and differential treatment in the fulfillment of WTO commitments or from LDC-specific support for the WTO accession process. Impact Assessments consider, for LDCs that are members of the WTO, the extent to which they have used the special and differential treatment provisions in the WTO agreements and the implications of no longer being able to use them. For countries in the process of accession, it identifies the impacts graduation may have on that process.

– What happens to development cooperation?

The international community has made a number of commitments in support of LDCs as a group and specific instruments have been put in place to support LDCs in developing trade capacity, financing climate change adaptation and others. When a country graduates from the LDC category, it no longer has access to those specific instruments, which include a range of trade-related capacity-building instruments. However, development partners do not base their cooperation programmes on LDC status.

Impact Assessments consider the significance of the loss of LDC-specific support measures for each country in the context of the main development cooperation programmes by identifying and consulting the main development partners on their post-graduation prospects for the country in question.

– Do a country’s contributions to the United Nations budget increase when it graduates?

LDCs benefit from discounts and maximum thresholds on their contributions to the budgets of the United Nations and United Nations system entities. Budget contributions depend on a country’s income level and other factors, and in many cases graduation has no impact on contributions as countries remain under the maximum threshold for LDCs. Impact assessments calculate the amounts of change in the contributions due based on current budgets, as an indication of the expected changes once the country graduates.

(Aforementioned impacts of LDC graduation has been extracted from un.org website)

Fiscal Nepal |
Sunday February 28, 2021, 03:10:05 PM |

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