Opinions vary as Bhutan’s graduation from LDC Status amid joining WTO

With the downtrodden economy and private sector growth stagnation, and layers of implications due to a large number of people leaving abroad, and the hotel and service sector down, brings in the question of whether we are graduating at the right time.

The Least Developed Countries (LDCs) are developing countries that have the lowest indicators of socioeconomic development. The concept of LDCs was first developed in the late 1960s and was officially codified under UN resolution 2768 passed on November 1971.

Bhutan was included in the first group of LDCs in 1971 and has been a grateful beneficiary since then. During the United Nations Least Developed Countries (LDC) Summit held on 9 March in Doha, Qatar, it was discussed that Bhutan will become the only seventh country to graduate from the list.

Minister of Energy and Natural Resources, Lyonpo Loknath Sharma stated that there is no right time for Bhutan to graduate, as there is nothing to lose nor gain much from that.

Lyonpo said Bhutan is ahead in social criteria, and crossing the stage in economic front because of the per capita income is high above the threshold, and there is nothing that stops Bhutan from graduating.

While the Opposition Leader, Dorji Wangdi, said, “The per capita of our country right now is laid back to somewhere near 2017 so considering that, we’re not just graduating at the wrong time but also doubtful if we actually fulfill those three conditions considering the COVID hitting our economy at the weakest point.”

Bhutan is due to exit from the category of LDC as we have met two out of three thresh-holds viz Per Capita Income and Human Asset Index (HAI). The HAI is a composite of health and education indicators. The third is Economic Vulnerability Index (EVI), which Bhutan is apparently very close to achieving.

He further added, “Graduating LDC as well as joining WTO will impact our private sector, which is still at a nascent stage. Joining WTO means our private sector will have to comply by the rules from Organization which will have a major impact on Cottage and Small Industries (CSI).”

An Economist teaching at the Royal Thimphu College, Professor Sanjeev Metha, said, “Graduating from LDC status reflects our development success but entails changes in market access, loss of LDC-specific aid, and reduced policy flexibility. We can convert these challenges into opportunities through industry competitiveness, increased revenue, and reforms. Delayed WTO accession means we lose special treatment as LDC, however, due to extensive trade with India through the Free Trade Agreement, most favored nations treatment won’t greatly affect Bhutan.”

Economies more resilient than Bhutan, like Bangladesh and Nepal were granted approval by the UN General Assembly in 2021, five instead of three years to cope with the post COVID-19 pandemic. Hence, these three countries will continue to receive the benefits of an LDC until 2026 to help them transition phase while Bhutan will be graduating by 13 December 2023.

Regarding Bhutan joining WTO, Lyonpo Karma Dorji, Ministry of Industry, Commerce and Employment stated, “This benefits the private sector by attracting more foreign investment, ensuring stable trade rules. Bhutan, with lower taxes and protective clauses, gains access to global markets, leading to better imports and export opportunities. Positive outcomes are expected.”

He further added, “Bhutan, joining WTO as an LDC, gets relaxed requirements, more time for compliance, and better support. However, if it joins after graduating from LDC status, it may face more stringent requirements and shorter compliance timelines. The specifics will also depend on negotiations with other WTO member states.”

The President of Bhutan Chamber of Commerce and Industry, Tandy Wangchuk, said that given the economic conditions in Bhutan, it may not be the right time to transition out of the LDC status. He said joining WTO will bring in significant potential for the nation to have the national credibility, making us more appealing to Foreign Direct Investments (FDI) due to stable policies and principles.

Tandy said, “This move opens the door for us to engage in trade with 164 countries while enjoying protection through the principles of reciprocity and non-discrimination, allowing us to actively contribute to shaping the nation. Nevertheless, despite joining WTO membership, we face challenges in exporting our goods, primarily because our products lack necessary certifications. The certification process is particularly demanding, with varying requirements across different countries, and notably, we lack the necessary laboratory infrastructure for conducting product certifications.”

The President also conveyed that the private sector has not been involved in the committee responsible for evaluating and shaping the policy for WTO. He remains optimistic that the government may include them sooner before it is too late.

After Bhutan’s graduation, there’ll be a three-year monitoring period to ensure it doesn’t regress into LDC status again. During this time, specific support measures will be in place, and LDC benefits won’t be terminated. Nevertheless, these arrangements will entail negotiations and remain mostly uncertain.

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