Why Should Somalia Join the WTO?

April 23, 2018

(Note: This confidential project is the work of Hélio Eduardo de Paiva Araújo, Melchior Jordan Kuo, and John Nyanje (The Graduate Institute, Geneva))

 

 

Non-Confidential Summary

 

Acceding to the WTO is a positive project that can help Least Developed Countries (“LDC”) governments establish strong rule-based domestic institutions. LDC entrepreneurs also benefit through involvement in the accession process and through access to global markets.

 

The WTO is comprised of 164 member states and covers over 98 percent of world trade. Joining the WTO grants access to this market, which is especially important for LDCs pursuing economic development. This market access function of the WTO is one of the key end-results of accession. However, important benefits are afforded to acceding LDCs from the earliest stages of the accession process and continue throughout their WTO membership. This is illustrated through Liberia’s recent successful accession and Somalia’s on-going accession.

 

Somalia submitted its application for accession under Article XII of the WTO Agreement on 12 December 2015. Currently, Somalia is close to submitting its ‘Memorandum of the Foreign Trade Regime’ (MFTR), a comprehensive report of Somalia’s legal framework and economic policies. Once the MFTR has been submitted, Somalia will enter into negotiations with other interested WTO Member States where modifications to Somalia’s legal regime may be suggested and the implementation periods of WTO rules and tariff bindings will be decided. On average, the accession process takes about 12 years from start to finish for LDCs. Nevertheless, Somalia has set the ambitious goal of acceding by 2020.

 

The accession process maps out the acceding country’s legal framework and brings it into alignment with WTO rules. The MFTR, a key component of the accession, serves as a focal point, providing an incentive for enhanced intra-governmental communication. Especially important for Somalia, where establishing linkages between different government agencies will help build a more effective administration. As part of Somalia’s ongoing accession process, the Somali Chief Negotiator helped establish a National Steering Committee to enable different government ministries to meet and exchange information. This excersise, triggerd by the WTO accession process, is especially important for a country, such as Somalia, who is focused on rebuilding the country and government after 26 years of civil strife. Exercises such as this demonstrate the constructive potential of the WTO accession process for building intra-governmental communication.

 

Countries like Somalia and Liberia have young and innovative populations (the Somali median age being 17.7 years old) who will benefit the most from WTO membership but their needs must be adequately represented. However, such LDCs do not always have the capacity to effectively understand the needs of local SMEs. Fortunately, acceding LDCs can rely on assistance from organisations such as the International Trade Centre (ITC) and UNCTAD, who can help bring to the forefront the needs of local SMEs. For example, the ITC and UNCTAD helped Liberia understand and promote the interests of its innovators throughout the accession process. In the face of civil unrest, Somalia has maintained a healthy informal economy, mainly based on livestock, remittance and money transfer companies, and telecommunications. There has also been substantial, albeit unmeasured, private investment in sectors such as trade and marketing, money transfer services, transportation, communications, fishery equipment, airlines, and telecommunications among others. This informal economy has the potential to flourish when its needs are taken account of and promoted through membership of the WTO. Through the accession process and with the aid of the abovementioned organisations, local Somali SMEs can help decide how they will take part in world trade.

 

Comprehensive technical assistance is available throughout the accession process. The WTO Secretariat helps acceding LDCs build a blueprint for an effective legal framework for economic development, while tailoring it to the specific needs of the country. This assistance continues long after the accession process is finished. For example, Liberia was given extensive help in acceding to the WTO (doing so in record time) and is still receiving WTO technical assistance helping Liberia strengthen its domestic institutions. This type of assistance is not unique to Liberia’s case but is given to all LDCs. Further assistance is generally granted to LDCs through the ACWL, law firms working pro-bono, NGOs like TradeLab and even some WTO Member States.

 

The benefit for Somalia, joining at a stage where its legal system is not fully developed, is that the WTO rules can be used as a blueprint for domestic legislation. Somali institutions can be built in line with WTO rules, as opposed to having to reform hundreds or thousands of laws (as was the case for China’s accession). Adopting a WTO compliant legal system will reduce illicit trade flows, ‘leakage’ through corruption, discretionary fees and unexpected added expenses to exporters. Building the Somali legal system in line with WTO rules from the start will simplify the task of creating new legislation and will provide solid laws which will facilitate efficient trade and cheaper prices for Somali citizens and entrepreneurs.

 

In sum, the accession process itself provides LDCs such as Somalia an opportunity to strengthen domestic institutions through more intra-governmental communication and a solid legal framework created with the assistance of the WTO Secretariat and others. International organisations can also help LDC governments engage with their SMEs and promote their interests on the world stage. At once both top down (through a new legal framework) and bottom up (by taking into account the interests of local SMEs and enabling their development) reform.

 

After having completed the MFTR and negotiations with interested WTO members, the ‘Terms of Accession’ must be finalised and are subsequently circulated among the 164 WTO Member States. When the WTO meets for a Ministerial Conference of General Assembly, the entire WTO Membership will vote on whether Somalia can join the WTO. All Members must vote in favour of Somalia’s accession for it to be admitted to the WTO. Fortunately, it is in the interests of WTO Member States to vote in favour of Somalia’s accession. Somalia has historically been an important trading hub and allowing Somalia to join the WTO would not only benefit Somali businesses, but would also reduce the cost of commerce for regional and global players. Promoting economic development in Somalia will have positive effects on the development of the rest of the region, contributing to a more efficient world trading system, which is in the interests of all. Somalia will thus yet again become an indispensable trading hub.

 

Once Somalia joins the WTO it will gain access to 98 percent of the world market. Meaning that local Somali innovators can create brands not limited to Somalia but able to reach as far as Taiwan and Argentina. Somali innovators will be able to trade with citizens in the other 164 WTO Member countries, and most importantly trade will be cheap, efficient and easy. WTO Membership would allow the Somali economy to grow vertically and horizontally; more economic growth and diversification will occur due to less restricted trade. This will allow Somalia to move beyond its heavy reliance on agriculture and livestock (which is at serious risk due to climate change) to a more diverse and stable economic base.

 

Additional benefits include: a reduced cost of living for Somalis due to reduced trade barriers which lower the cost of imports; more choice and a wider range in quality of goods and services; and, increased incomes for individuals and businesses due to more efficient trade. Members acceding to the WTO in the last 15 years have grown faster in terms of trade performance and demonstrated greater resilience to recover from economic crises.

 

Although there are extensive benefits in acceding to the WTO, simply joining the WTO is not a ‘golden bullet’. The rules, framework and expertise necessary for success are provided by the WTO and international society but Somalia needs to take domestic steps to ensure that the positive action taken at the global level is replicated at the national level. With the assistance of the WTO Secretariat, Member States and other International Organisation expertise Somalia will have tools for development. Somalia must wield these powerful tools to forge strong domestic institutions and a successful future.

 

Acceding to the WTO sends a powerful signal to international society that Somalia is entering a new phase and is ready for business. A new image of Somalia as a progressive State replacing that of a so called ‘failed state’ will be available through WTO membership. This comes at an important time especially when considering China’s plans for ‘21st Century Silk road’, which will pass along Somalia’s coast.

 

 

 

 

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