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Development at a critical juncture

Materiale didattico per il corso di Diritto internazionale dello sviluppo della Prof.ssa Cristiana Carletti utile alla stesura degli elaborati finali. Trattasi del rapporto della Millennium Development Goals Task Force del 2010 in cui sono esposti le azioni di cooperazione allo sviluppo attuate dal piano, i risultati raggiunti a paragone con gli obiettivi... Vedi di più

Esame di Diritto internazionale dello sviluppo docente Prof. C. Carletti

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27

Market access (trade)

The United Nations Millennium Declaration and the Millennium Development Challenges remain towards

the full implementation of

Goals (MDGs) give considerable weight to promoting developing-country access the market access targets

to markets, especially to those of developed countries, in an open, rule-based,

predictable and non-discriminatory international trading system. In addition,

Goal 8 calls upon Member States to address the trade-related needs of developing

countries through specific support measures. It further acknowledges the need

to assist developing countries to respond more effectively to trading opportuni-

ties through domestic capacity-building in what has come to be called “Aid for

Trade”. A number of steps have been taken towards implementing these targets,

but there have also been a number of challenges, not least the shock to develop-

ing countries of the severity of the recent global economic and financial crisis.

A decade of trade policy expectations

Almost a decade ago, in November 2001 in Doha, Qatar, member States of

the World Trade Organization (WTO) agreed to negotiate a global package of

trade-promoting measures, giving special emphasis to producing outcomes that

promote development. The so-called Doha Round thus sought to remove trade

barriers in a number of areas of particular interest to developing countries, includ-

ing areas that had resisted earlier efforts at reaching multilateral agreement, such

as agriculture, services (potentially including international labour movements),

non-agricultural trade (as in the practice of tariff escalation), and protection of

intellectual property (by ensuring that it not be carried out at the expense of

public health in developing countries by restricting access to medicines).

1

The Doha package also committed member States to work towards pre-

ferential market access policies (for instance, duty free and quota free (DFQF)

access) for the exports from least developed countries (LDCs). This has also been

the focus of policy commitments at the United Nations conferences on the LDCs,

in particular those contained in the Brussels Programme of Action adopted by

LDC development partners at the Third United Nations Conference on the Least

Developed Countries, held from 14 to 20 May 2001. The international com-

2

munity also agreed to focus attention on meeting the special needs of small island

developing States (SIDS) and the landlocked developing countries (LLDCs). 3

A full review is available from http://www.wto.org/english/tratop_e/dda_e/dda_e.htm.

1 See A/CONF.191/11, para. 68.

2 See Mauritius Strategy for the Further Implementation of the Programme of Action for the

3 Sustainable Development of Small Island Developing States (A/CONF.207/11, annex II),

particularly paras. 66-69 and 97; and Almaty Programme of Action: Addressing the Special

Needs of Landlocked Developing Countries within a New Global Framework for Tran-

sit Transport Cooperation for Landlocked and Transit Developing Countries, (A/CONF.

202/3, annex I), paras. 38-41.

28 The Global Partnership for Development at a Critical Juncture

In addition, there has been broad recognition of the long-term pay-off from

Aid for Trade in assisting developing countries. The current donor effort in this

regard builds on a multiagency programme for the LDCs that began in 1997

called the Integrated Framework (IF) for Trade-Related Technical Assistance to

Least Developed Countries, whereby donors and six core international institu-

tions supported LDC Governments in better integrating trade into their national

4

development strategies. Today, Aid for Trade includes helping developing coun-

tries to develop trade strategies and negotiate more effectively, on the one hand,

and to invest in infrastructure and productive capacity and adjust to the domestic

consequences of tariff reductions, preference erosion or declining terms of trade,

on the other. Such programmes for assisting LDCs, LLDCs, SIDS and other

developing countries have required increased funding, primarily provided as part

of official development assistance (ODA). Global coordination and monitoring of

Aid for Trade takes place in the WTO and through the Development Assistance

Committee (DAC) of the Organization for Economic Cooperation and Develop-

ment (OECD), as well as at the country level, for both donors and aid recipients.

Developing-country trade performance

Impact of the global crisis

The international effort to help developing countries participate more effectively in

international trade has been predicated on a continuance of the dynamic growth

of developing-country trade seen in recent decades. However, the recent global

crisis has delivered an economic shock of almost unprecedented magnitude.

World trade volume dropped by 13 per cent in 2009. The downturn was

5

The collapse in

commodity prices has compounded by sharp declines in commodity prices between September 2008

particularly affected least and March 2009. The most affected countries were in the group of transition

developed countries economies and in Western Asia, which witnessed adverse trade declines of almost

13 and 9 per cent of gross domestic product (GDP), respectively. The impact of

the crisis was especially visible in the LDCs, who depend heavily on a few com-

modities for most of their export revenue. The collapse in commodity prices thus

severely reduced the value of their exports. Nevertheless, the quantity of their

6

exports saw continued growth in 2009, particularly their top exports, in respect

of which volumes expanded by 6 per cent; values, however, declined by 9 per cent

(table 3). These were led by large declines in prices of minerals, metals and wood.

LDCs were therefore exporting more for less.

Recovery, accompanied by a rebound in commodity prices, began in the

second half of 2009. However, by some estimates, one year later, the dollar value

of trade in some developing regions remains about 20 per cent lower than pre-

International Monetary Fund, International Trade Centre, United Nations Conference

4 on Trade and Development, United Nations Development Programme, World Bank

and World Trade Organization.

World Economic Situation and Prospects as of mid-2010 (E/2010/73), p. 2.

5 WTO, “Market access for products and services of export interest to least developed

6 countries” (WT/COMTD/LDC/W/46/rev.1), 26 February 2010. LDCs were especially

affected by the decline in the international price of oil and minerals, their main products

of export. 29

Market access (trade)

Table 3

Least developed country exports to major partners: growth in 2009 (percentage

and percentage change)

Harmonized Share of Value Volume

System Code Products exports, 2008 growth growth

All commodities, excluding

crude oil

-- 100 -8.5 5.8

Articles of apparel, accessories,

knitted or crocheted

61 21 -2.8 -1.2

Articles of apparel, accessories,

not knitted or crocheted

62 16 -0.5 -1.5

Mineral fuels, oils, distillation

products, etc.

27 15 -29.4 -13.0

Ores, slag and ash

26 9 -22.3 19.9

Fish, crustaceans, molluscs,

aquatic invertebrates

03 5 -13.6 4.0

Copper and articles thereof

74 4 14.6 63.0

Wood and articles of wood,

wood charcoal

44 3 -32.9 -23.3

Coffee, tea, mate and spices

09 2 -6.9 6.4

Other base metals, cermets,

articles thereof

81 2 -58.1 -8.1 Source: International Trade

Centre, ITC Trade Map

Aluminium and articles thereof

76 2 -22.5 5.2 Fact Sheet No. 3.

crisis levels. World trade is expected to grow by over 7 per cent in 2010 and by

7

about 6 per cent in 2011, according to the baseline scenario of the United Nations

World Economic Situation and Prospects as of mid-2010. Bearing in mind that

8

these are recovery years, the projections do not augur well as they are lower than

the average growth in world trade in 2004-2007, which was almost 8 per cent

per year.

The problems induced by the global recession were compounded for Recourse to trade

restrictions in response to

developing-country exporters by the fear of a retreat from trade liberalization in the crisis has been limited

developed economies. In the initial months of the global crisis, as some coun-

tries began to take protectionist measures in response to the crisis, the Group of

Twenty (G-20) committed themselves to resisting such practices and requested

the main international trade agencies to monitor country activities in this regard.

9

From September 2009 to mid-February 2010, recourse to new trade restrictions

by G-20 members was less pronounced than in the year from September 2008,

and the overall extent of these restrictions has been limited.

10

The financial crisis that set off the recession also damaged developing- Low-income countries

continue to face constraints

country exports, as trade finance became hard to arrange. While the global mar- in accessing trade finance

World Bank and IMF, Global Monitoring Report 2010: The MDGs after the Crisis (Wash-

7 ington, D.C., World Bank, 2010).

World Economic Situation and Prospects as of mid-2010, op. cit.

8 See WTO, “Overview of developments in the international trading environment” (WT/

9 TPR/OV/12), 18 November 2009.

See OECD, UNCTAD and WTO, “Report on G-20 Trade and Investment Measures

10 (September 2009–February 2010)”, 8 March 2010, available from http://www.oecd.

org/dataoecd/21/21/44741862.pdf.

30 The Global Partnership for Development at a Critical Juncture

ket for trade financing eased up in the second half of 2009, regions benefited to

different extents. Emerging markets led in this regard, but low-income countries,

particularly those in sub-Saharan Africa, continue to face significant constraints

in trade finance. The package to support short-term trade finance set up by the

G-20 at the London Summit in April 2009 helped ease the situation. However,

further focus of the package’s remaining resources should be directed towards

longer-term action plans and should ensure access to countries that need it the

most.

11

Pre-crisis trends in developing-country exports

While it is hoped that the current crisis will be a temporary phenomenon, it is

not clear if and when a more dynamic, pre-crisis world trade growth will return.

Developing-country participation in world trade has increased dramatically over

the past two decades. Several developing countries and countries with economies

in transition have become major trading nations and have achieved sustained

economic growth over a number of years. Developing countries as a whole

12

continued to increase their share in global exports, reaching 39 per cent in 2008

(31 per cent excluding oil), of which Asian developing countries captured 30 per

cent. However, the LDC share in world exports remains extremely small. It barely

surpassed 1 per cent in 2008, but with the exclusion of oil, LDCs supply only 0.4

per cent of global exports.

13

Prior to the crisis, the export concentration of some groups of developing

LDCs remain dependent

upon few commodity countries had been increasing, although this was in part due to the rising com-

exports and are vulnerable modity export prices some countries were enjoying. Thus, while the export con-

to price swings centration of developing countries as a whole has remained relatively stable since

2000, it has increased for LDCs and African countries, and most dramatically

for LLDCs because of higher earnings from minerals and fuels (figure 7). This

also points to the high vulnerability related to price swings, as seen in table 3.

Export markets of developing countries have increasingly diversified,

including those of LDCs. In 2008, as much as 50 per cent of LDC exports were

shipped to other developing countries. China became the main importer of LDC

products in 2008 (23 per cent of global LDC exports compared with 21 per cent

for the European Union (EU)). Significantly, the products in which LDC exports

to other Southern countries became more buoyant were also those for which

international prices were increasing.

14

The stalemate in the Doha Round

The fundamental strategy of the Doha Round has been to increase trading

opportunities for developing countries by lowering trade barriers, particularly

See WTO, “Report to the TPRB from the Director-General on trade-related develop-

11 ments” (WT/TPR/OV/W/3), 14 June 2010.

UNCTAD, Developing Countries in International Trade 2007: Trade and Development

12 Index (Geneva, UNCTAD, 2007).

WTO, “The impact of the financial crisis on Least Developed Countries”, background

13 material for the Seventh Ministerial Conference of the WTO, 30 November–2 Decem-

ber 2009, Geneva, available from http://www.wto.org/english/thewto_e/minist_e/

min09_e/impact_fin_crisis_e.pdf.

WTO, “Market access for products and services”, op. cit.

14 31

Market access (trade)

Figure 7 a

Export concentration ratios of developing countries, 1995-2008

0.6 Developed economies

Developing economies

0.5 Least developed

countries

Landlocked developing

0.4 countries

Small island developing

States

0.3 Africa

0.2

0.1

0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: UNCTAD Handbook of Statistics online.

Note: Herfindahl-Hirschman Index of market concentration normalized to obtain values from 0 to 1. An

index value that is close to 1 indicates a very concentrated market; values closer to 0 reflect a more equal

distribution of market shares among exporters or importers. For further details, see http://www.unctad.

org/en/docs/tdstat33ch2_enfr.pdf.

Herfindahl-Hirschman Index.

a

in developed markets. In fact, however, the negotiations under the Doha Round

are at an impasse. Since the last major push for a breakthrough collapsed in July

2008, WTO members have made repeated attempts to move the negotiations

towards an end-game, but without success. Recent “stocktaking exercises” fol-

lowing the Seventh Ministerial Conference of the World Trade Organization held

in Geneva, Switzerland, at the end of November 2009 have disappointed those

hoping to build positive momentum.

15

During the Ministerial Conference, calls were made for concluding the

Round with a strong pro-development impact, in particular with regard to issues

of special interest to LDCs. All developing-country groups stated that anything

short of a transparent, fair, equitable completion of the Doha Round would fail

to eliminate the current imbalances in the multilateral trade system that have

negative implications for poor countries. In the end, the goal set by the G-20

16

to conclude the negotiations in 2010 appears unrealizable, and no new deadline

has been set. Differences persist on how to improve market access in agriculture

and industrial goods, including by significantly reducing agricultural subsidies.

In addition, developing-country requests to enhance special and differential treat-

WTO, “Stocktaking ends with collective determination to start building global Doha

15 package”, Trade Negotiations Committee, 26 March 2010.

On the sidelines of the Ministerial Conference, two coordinating meetings of the WTO

16 G-20 and the WTO Informal Group of Developing Countries emphasized the need to

conclude the Doha Round with a strong development-oriented outcome.

32 The Global Partnership for Development at a Critical Juncture

ment for their trade (such as permitting smaller tariff reductions) have remained

unanswered.

Restrictions on the international movement of natural persons in search of

Lifting restrictions on the

international movement work are recognized as a serious impediment to trade in services, another area of

of natural persons could WTO negotiations. Removing restrictions could result in important benefits to

facilitate trade in services the world as a whole and in particular to developing countries, the largest sup-

pliers of such labour. According to some estimates, gains for developing coun-

tries stemming from temporary labour mobility could be as high as $150 billion

annually. However, the movement of natural persons remains heavily regulated,

17

and proposals for negotiation of the issue in the context of the Doha Round have

found resistance from developed countries. Furthermore, improvements, through

such trade, in the efficiency of infrastructure services, such as in the areas of

finance, telecommunications and transportation, could yield substantial gains

for developing countries.

Increasing emphasis is also being placed on the liberalization of trade in

environmental goods and services (EGS) and how it could contribute to the fight

against climate change. Gradual trade liberalization and carefully managed

18

market opening in these sectors can be a powerful tool for economic development

through generating employment and enabling the transfer of skills and technol-

ogy. But some developing countries remain concerned about the definition of

EGS and the scope of goods and services to be liberalized. To capture the benefits

of such liberalization, developing countries need to build supply capacities, adapt

regulatory frameworks and develop supportive physical, institutional and human

infrastructure.

There is an urgent need to resolve the conflicts between multilateral trading

Climate-linked trade

measures can damage rules and multilateral environmental agreements. In the view of the Director-

19

developing-country trade General of WTO, climate concerns should be given preference when attempt-

ing to align a multilateral climate agreement with multilateral trading rules,

since trade depends on climate conditions and is not an end in itself, but should

enhance welfare. There are already concerns that countries implementing strict

20

climate change policies will have to compete with exports from countries where

costs of production may be lowered as a result of the absence of mandatory emis-

sion reductions on producers. To remedy the potential adverse effects on trade,

proposals for carbon-based border measures are being put forward in an increas-

ing number of developed countries. Such climate-trade links can potentially be

used as a basis for protectionism and can damage developing-country trade.

T. Walmsley and A. Winters, “Relaxing restrictions on temporary movement of natural

17 persons: a simulation analysis”, Journal of Economic Integration, vol. 20, No. 4 (Decem-

ber 2005). The model simulations underlying the estimate cited assume that quotas on

the number of temporary workers permitted entry into the developed economies are

increased to 3 per cent of the labour force of developed economies.

WTO, “Chairman’s Summary”, Seventh Ministerial Conference of the WTO, Geneva,

18 2 December 2009 (WT/MIN(09)/18).

World Economic and Social Survey 2010: Retooling Global Development (United Nations

19 publication, Sales No. E.10.II.C.1).

Pascal Lamy, “Climate first, trade second: GATTzilla is long gone”, keynote address,

20 Simon Reisman Lecture, organized by the Norman Paterson School of International

Affairs, Carleton University, and the Department of Foreign Affairs and International

Trade of Canada, Ottawa, 2 November 2009, available from http://www2.carleton.ca/

newsroom/speech/pascal-lamy-simon-reisman-lecture/. 33

Market access (trade)

G-20 leaders have underscored the need to move beyond the advocacy for

trade and against protectionism by, inter alia, supporting negotiations with suf-

ficient political will and ensuring coherence between international and national

policy measures. But calls for redefining the level of ambition of the Round

bring into question the level of political commitment to a development-oriented

outcome. 21

There is a strong sense among some developing countries that the devel- Progress in the Doha

Round must be achieved

opment dimension of negotiations has been put on the back burner. Likewise, in all areas of negotiation,

some developing countries argue that their contributions to the multilateral tariff particularly development

reductions would be greater than those of developed countries in any of the previ-

ous negotiating Rounds. Against this background, there is fear that a rush to

22

conclude the Round in the near future might undermine the legitimate interests

of developing countries. The aim should be to achieve significant and balanced

progress in all areas of negotiation, particularly those important to development.

On the other hand, further delay in concluding the Doha Round would signify

further delay in reducing global farm subsidies; rebalancing WTO rules in a

number of areas; and taking other steps that could open additional policy space

for developing countries.

The state of protectionism

The Doha Round promised to address many aspects of trade policy that impede

developing-country access to developed-country markets. The state of protection-

ism in those markets indicates the continuing cost of not completing negotiations

with a strong liberalization of market access.

Developed-country tariff barriers

Most developed countries are not altering trade policies at this time (except in Average tariffs on key

exports of developing

limited ways in response to the global economic crisis, as mentioned above). Thus, countries remain high

recorded changes in average tariff levels reflect mainly the changing composition

of trade. The data indicate a small decline during the decade ending in 2008, the

latest year for which comprehensive data are available. The data also indicate that

average tariffs on key products from developing countries, particularly textiles

and apparel, remained relatively high. Tariffs on agricultural products fell for

developing countries as a whole and for LDCs in particular to 8 per cent and

1.6 per cent, respectively, thereby sustaining a margin of preference for LDCs

in these products (figure 8). Against this background, margins in clothing and

textiles remained at about 2 percentage points in 2008, providing little advantage

to the LDCs.

The structure of tariffs has not changed significantly in recent years either.

One of the objectives of the Doha Round has been to reduce tariff peaks and

escalation in products of particular interest to developing countries. There is a

Group of Twenty (G-20), “Joint Letter from G-20 leaders”, 29 March 2010, available

21 from http://www.whitehouse.gov/the-press-office/joint-letter-G-20-leaders.

WTO, statements by members and observers at the plenary session of the Seventh ses-

22 sion of the WTO Ministerial Conference, Geneva, 30 November–2 December 2009,

available from http://www.wto.org/english/thewto_e/minist_e/min09_e/min09_

statements_e.htm.

34 The Global Partnership for Development at a Critical Juncture

Figure 8

Average tariffs imposed by developed countries on key products

from developing countries and least developed countries, 2000-2008

ad valorem)

(percentage

12

Developing countries

Agriculture

Textiles 10

Clothing LDCs 8

Agriculture

Textiles

Clothing 6

4

2

Source: WTO-ITC-UNCTAD,

based on WTO-IDB and

UNCTAD-ITC Tariff and Market

Access Database (TARMAC). 0 2000 2001 2002 2003 2004 2005 2006 2007 2008

higher value added, and hence greater potential return, from the exporting of

processed goods. Therefore, focusing on market-access issues that relate to both

raw and processed commodities and corresponding tariff levels at both upstream

and downstream stages is clearly warranted.

Overall, tariff peaks in high-income OECD countries have remained fairly

Agricultural tariff peaks

remain high stable over the past decade, at an average of 9 per cent of all tariff lines (table 4).

However, the incidence of agricultural tariff peaks remains high, at 36 per cent.

Similarly, while overall tariff escalation has shown a stable trend over the past

decade, large differences remain between the tariffs applied to fully processed

agricultural products and those for raw agricultural products.

Agricultural subsidies in developed countries

The level of trade-distorting agricultural support provided by OECD countries

Agricultural subsidies in

OECD countries remain is a function of policy and market prices. In 2008, it showed a small drop as a

high and continue percentage of those countries’ GDP, falling from 0.9 per cent in 2007 to 0.8 per

to distort trade cent in 2008, thus continuing the downward trend observed since the 1990s.

However, at $376 billion, support remains high in absolute terms and has even

increased by $12 billion since 2007 (table 5). Likewise, the level of support pro-

vided directly to producers continued to fall in percentage terms and has reached

its lowest level since the mid-1980s. 23

As had been the case in 2007, the fall in agricultural support was largely

caused by high agricultural prices, which remain above their long-term averages,

The level of the Producer Support Estimate (PSE) provided varies greatly by country,

23 ranging from 0.8 per cent of gross farm receipts in New Zealand to 62 per cent in

Norway. 35

Market access (trade)

Table 4 Source: International Trade

Tariff peaks and escalation in high-income Organization for Economic Centre.

a

Cooperation and Development countries, 1996, 2000 and 2004-2009 (percentage) Aggregated values over

a

countries are a weighted

average by share in world

imports.

1996 2000 2004 2005 2006 2007 2008 2009 Proportion of total tariff

b

b

Tariff peaks lines in a country’s MFN tariff

schedule with tariffs above

All goods 10.4 9.2 9.7 9.5 9.5 9.3 9.0 8.9 15 per cent.

Agricultural 35.4 33.4 35.6 37.6 37.6 37.4 37.5 36.5 Percentage-point difference

c

between the applied tariffs for

Non-agricultural 4.0 3.1 2.4 2.2 2.3 2.2 2.2 2.2 finished (or fully processed)

c

Tariff escalation goods and the applied tariffs

for raw materials. Prior to

All goods 1.1 1.0 0.5 0.1 0.2 0.1 0.1 0.1 aggregation over countries,

Agricultural 13.4 12.6 10.8 10.7 10.7 11.2 11.8 11.2 the country average is a simple

average of Harmonized System

Non-agricultural 2.4 2.1 1.6 1.6 1.6 1.3 1.4 1.4 six-digit duty averages.

Table 5

Agricultural support estimate in Organization for Economic Cooperation and

Development countries, 1990, 2000 and 2004-2008 a

1990 2000 2004 2005 2006 2007 2008

b

Total agricultural support in OECD countries Source: OECD, PSE/CSE

Billions of U.S. dollars 327 323 383 375 363 364 376 database, 2009.

Billions of euros 257 351 308 302 289 266 257 Preliminary estimates.

a The Total Support Estimate

b

As a percentage of OECD (TSE) comprises support to

countries’ GDP 2.0 1.2 1.1 1.0 1.0 0.9 0.8 agricultural producers, both at

c

Support to agricultural producers in OECD countries the individual and collective

levels, and subsidies to

Billions of U.S. dollars 249 245 286 271 258 260 265 consumers.

Billions of euros 196 266 230 218 206 189 182 The Producer Support

c

Estimate (PSE) measures

As a percentage of gross farm support provided directly to

receipts 31.5 32.5 30.0 28.3 26.2 22.5 21.3 agricultural producers.

rather than agricultural policy reform. Support based on commodity output, the

most distorting form of support in terms of production and trade, continues to

account for the majority of producer support. 24

There is concern about the high level of trade-distorting subsidies provided

by OECD countries given their harmful effects. Even when subsidies are targeted

at locally consumed products, or when they are decoupled from production or

prices, they still represent a barrier to trade and thus limit access for developing-

country exports. Furthermore, subsidized products entering world markets drive

prices down, hurting developing-country exporters, who are affected through

two channels. First, agricultural support in OECD economies insulates produc-

ers from world price changes, shifting the adjustment burden abroad. Second,

OECD country exports take significant market shares away from more efficient

OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation 2009

24 (Paris, OECD, July 2009).

36 The Global Partnership for Development at a Critical Juncture

developing-country exporters and local producers. In some countries, this situa-

tion is aggravating food security problems.

The state of LDC preferences

The international community agreed in various forums to accord preferential

A large gap remains in

providing duty-free and market access to LDCs. Although almost all developed WTO member States

quota-free market access have adopted preference schemes in favour of LDCs and a number of developing

to LDC products countries have improved their market access for those countries, actual market

opening has had virtually no effect on LDC trade flows since 2004. The propor-

tion of imports from LDCs admitted free of duty into developed-country mar-

kets, excluding arms and oil, reached 81 per cent in 2008, less than 1 percentage

point higher than in 2004 (figure 9). At the same time, developing countries as

a whole managed to increase their duty-free access to 80 per cent in 2008 owing

to overall tariff cuts on a most favoured nation (MFN) basis, thereby attaining

nearly the same level as that of LDCs based on preferential treatment. For devel-

oping countries as a whole, the coverage of preferential access has been about 20

per cent since 2004 and their use of MFN duty-free access reached over 60 per

cent by 2008.

Indeed, significant differences remain in the degree to which individual

countries can access the preference schemes, as these schemes can differenti-

ate among countries in quite complex ways. For example, while market access

for exports from Bhutan and the United Republic of Tanzania increased from

less than 97 per cent in 2007 to 98 and 99 per cent in 2008, respectively, it

decreased below 97 per cent for exports from the Lao People’s Democratic Repub-

lic, Malawi, Mozambique, Myanmar, Somalia and Zambia (figure 10). Access fell

for another 10 countries, but remained above 97 per cent.

Figure 9

Proportion of developed-country imports from developing countries and least

developed countries admitted free of duty, by value, 2000-2008 (percentage)

95

LDCs, excl. arms

LDCs, excl. arms and oil 90

Developing countries,

excl. arms 85

Developing countries,

excl. arms and oil 80

75

70

Source: WTO-ITC-UNCTAD 65

based on WTO-IDB and

UNCTAD-ITC Tariff and Market

Access Database (TARMAC). 60 2000 2001 2002 2003 2004 2005 2006 2007 2008 37

Market access (trade)

Figure 10

Proportion of total developed market economies’ imports (by value) from

selected least developed countries, admitted free of duty, 2006-2008 (excluding

arms and oil) (percentage) Uganda Cambodia 2006

Myanmar

Tuvalu Bangladesh

100

Timor-Leste 2007

Malawi

Solomon Is. 90 Lao People's Dem. Rep. 2008

Senegal Benin

80

Sao Tome and Prin. Nepal

70

Samoa Sudan

60

Rwanda Mozambique

50

Liberia Zambia

40 Somalia

Lesotho 30 Maldives

Haiti 20 10

Guinea SierraLeone

0

Equat. Guinea Tanzania, United Rep. of

Comoros Ethiopia

Eritrea

Chad

Cent. African Rep. Togo

Burundi Kiribati

Bhutan

Burkina Faso Source: WTO-ITC-UNCTAD

Madagascar

Angola based on WTO-IDB and

Gambia

Mauritania UNCTAD-ITC Tariff and Market

Afghanistan Congo, Dem. Rep. of Access Database (TARMAC).

Djibouti

Niger Yemen Vanuatu

Mali

Guinea-Bissau

Asian LDCs would benefit significantly if they were to acquire full DFQF.

Estimates indicate that full DFQF provided by the OECD to LDCs would pro-

vide benefits to Bangladesh and Cambodia, including a boost in exports of 4 per

cent (approximately $375 million) and nearly 3 per cent (approximately $100

million), respectively. Equally, LDCs face the challenge of preference erosion

25

stemming from significant across-the-board MFN tariff and subsidy reduction

in developed countries. A decrease in OECD tariffs and subsidies on an MFN

basis would reduce Bangladesh’s export revenues by about $220 million and

Cambodia’s by about $54 million. But other low-income countries also stand

26

to lose. Bolivia, for instance, would suffer preference erosion vis-à-vis LDCs if full

DFQF market access were granted. Uganda, which already benefits from several

preference schemes, may also suffer preference erosion. 27

Besides developed-country LDC preferences, a number of large develop-

ing countries have also begun to grant DFQF access to LDCs (table 6). This is a

Overseas Development Institute, “Bangladesh: Case Study for the MDG Gap Task

25 Force” (May 2010) and “Cambodia: Case Study for the MDG Gap Task Force” (May

2010). See also David Laborde, Looking for a Meaningful Duty Free Quota Free Market

Access Initiative in the Doha Development Agenda, ICTSD Issue Paper No. 4 (Geneva,

International Centre for Trade and Sustainable Development, December 2008).

ODI, op. cit.

26 ODI, “Bolivia: Case Study for the MDG Gap Task Force” (May 2010) and “Uganda:

27 Case Study for the MDG Gap Task Force” (May 2010).

38 The Global Partnership for Development at a Critical Juncture

Table 6 a

Preference schemes provided for exports from least developed countries

Duty-free

access for LDC

Entry exports in 2007

Programme into (percentage of Rules of origin: Programme

or country force Product coverage tariff lines) level of flexibility length

Australia 2003 100 per cent 100 Moderate Indefinite

Brazil 2010 Initially, 80 per cent of tariff .. .. Announced in late

lines by mid-2010; to be 2009

expanded to reach 100 per cent

Canada—Least 2003 100 per cent 98.9 High Extended through

Developed Country (excludes quota-controlled 2014

Tariff dairy, poultry and eggs)

China—Forum 2008 Starting with 60 per cent of .. Moderate ..

on China-Africa products, expanding to 95 per

Co-operation cent (for LDCs in Africa that have

diplomatic relations with China)

China—DFQF for 2006 DFQF on selected tariff .. Moderate ..

Asian LDCs lines only

EU—Everything But 2001 100 per cent as of 2010 99.4 Moderate Indefinite

Arms (EBA) (excludes arms and ammunition)

Iceland 2002 Essentially all products, .. Low Indefinite

but not 100 per cent

India—Duty Free 2008 85 per cent of tariff lines .. Moderate ..

Tariff Preference within five years (fully

(DFTP) Scheme operational for 14 LDCs in 2010)

Japan 2007 98 per cent of tariff lines 98.2 Low Extended for

(excludes certain agriculture, 10 years (through

fish and leather products) 2011)

Republic of Korea 2008 Presidential decree 17.4 (in 2006) Low Uncertain

providing DFQF access

expanded to 75 per cent

New Zealand—LDC/ 2001 100 per cent 100 Moderate Indefinite

LLDC GSP Scheme

Norway 2002 100 per cent 100 Low Indefinite

Switzerland 2007 100 per cent as of 2010 85.2 Low Indefinite

Turkey (EBA) 2005 100 per cent as of 2010 .. High Indefinite

United States—GSP 1976 83 per cent 82.5 Moderate Ad hoc/usually 1-2

for LDCs (excludes apparel) years (extended

through 2010)

United States— 2000 Varies up to 98 per cent .. High Extended for

African Growth and (24 sub-Saharan LDCs) 11 years (through

Opportunity Act 2015); 5 years for

(AGOA) apparel

United States— 2006 Duty-free entry for garments .. Moderate (potential Extended for

Haitian Hemispheric manufactured in Haiti flexibilities under 10 years; ongoing

Opportunity discussion through discussions

through Partnership the Haiti Economic to extend through

Encouragement Act Lift Program Act 2020

of 2010)

Market access for products and services of export interest to least developed countries

Source: World Trade Organization, (document WT/

Opening markets for poor countries: are we there yet?,

COMTD/LDC/W/46/Rev.1); Kimberly Elliot, CGD Working Paper 184 (Washington, D.C.,

Open markets for the poorest countries: trade preferences that work,

Center for Global Development, 2009); Kimberly Elliot, CGD Working

Group on global trade preference reform (Washington, D.C., Center for Global Development, April 2010).

Belarus, Kazakhstan, Kyrgyzstan, the Republic of Moldova, Morocco, Pakistan, the Russian Federation, Sri Lanka, Tajikistan and Uzbekistan

a

also implement preference programmes in favour of exports originating from all or selected LDCs. 39

Market access (trade)

welcome development which holds potential for expanding LDC exports given

the increasing role of emerging developing countries as drivers of world trade.

While many countries provide 100 per cent duty-free access for LDC

exports, there is room for improvement in many of these programmes, espe-

cially considering that the economic costs in the preference-giving countries of

extending full market access to LDCs on production and exports are very small. 28

Asian LDCs, in particular, stand to gain the most from an expansion of these

programmes, especially from a broadening of the United States scheme under

the Generalized System of Preferences (GSP), which currently excludes apparel

exports. While these preferences are largely unilateral, a conclusion of the Doha

Round could consolidate them. In turn, this presents a real challenge of prefer-

ence erosion for other low-income countries with little capacity to adjust to a more

competitive trading environment in the medium run.

Statistical indicators of preferential access are based on the assumption that Strict rules of origin

and non-tariff barriers

existing preferences are fully utilized by LDCs, but some preferential regimes render market access

have conditions that impede full utilization. Addressing non-tariff barriers,

29 opportunities ineffective

which can render market access opportunities ineffective for LDCs, remains an for LDCs

important challenge. Examples are restrictive “rules of origin” criteria to deter-

mine eligibility for the preferences (as in the percentage of the product to be made

in the LDC) or improper sanitary and phytosanitary standards meant to keep

products out rather than keep consumers safe.

Aid for Trade

Further to the emerging consensus on strengthening the trading capacity of

developing countries, donor commitment on Aid for Trade continues. Total com-

mitments to developing countries increased 35 per cent in real terms in 2008 to

reach a record level of $42 billion, contrasting with increases averaging 10 per

30

cent in real terms in 2006 and 2007. This represents a 62 per cent increase from

the 2002-2005 baseline established by the WTO Task Force on Aid for Trade.

The share of Aid for Trade in total sector-allocable aid commitments

increased to 37 per cent in 2008. The composition of commitments has shifted

slightly towards trade-related infrastructure, which in 2008 represented 55 per

cent of total Aid for Trade compared with an average of 52 per cent between

2002 and 2007 (figure 11). On the other hand, the share of commitments to help

build productive capacity has fallen to 41 per cent, from 45 per cent, between

2002 and 2007.

Antoine Bouët and others, The costs and benefits of duty-free, quota-free market access for

28 poor countries: who and what matters, Center for Global Development, Working Paper

206 (Washington, D.C., March 2010). Estimates show that if the United States were to

grant DFQF to 97 per cent of tariff lines, LDCs might increase exports to that country

by about 10 per cent, or to about $1 billion; see Celine Carrere and J. de Melo, “The

Doha Round and market access for LDCs: scenarios for the EU and U.S. markets”

(Centre for Studies and Researches on International Development (CERDI), March

2009).

The actual rate of utilization may be as low as 40 per cent for products such as textiles

29 and clothing. WTO, Market Access for Products and Services, op. cit.

Aid for Trade figures are provisional.

30

40 The Global Partnership for Development at a Critical Juncture

Figure 11 of constant 2008 US dollars,

Total Aid for Trade commitments, 2002-2008 (billions

left-hand scale; total aid for trade as a percentage of total sector-allocable aid,

right-hand scale) 40

45

Trade-related adjustment

Trade policy and 40

regulations 37

Building productive 35

capacity

Economic infrastructure 30 34

Percentage of total 25

sector-allocable aid 20 31

15

10 28

5

Source: OECD/DAC data. 25

0 2002-2005 2006 2007 2008

The top 10 recipients of Aid for Trade accounted for 52 per cent of country-

Aid for Trade resources

continue to be allocable commitments in 2008, or 45 per cent of total commitments (table 7).

concentrated in a few Commitments to a number of countries for large projects help explain the high

countries concentration of Aid for Trade assistance. Some of these are explained by one-off

loans to fund large infrastructure projects that started in 2008. Among bilateral

donors, Japan is now the largest contributor in absolute terms ($9 billion), fol-

lowed by the United States of America ($6 billion) and the EU ($6 billion).

Aid for Trade is intended to assist developing countries, especially LDCs,

in building their trade-related infrastructure and productive capacity. In 2008,

the largest share of Aid for Trade (40 per cent) was committed to lower middle

income countries. LDCs received $10.5 billion in Aid for Trade, representing 25

per cent of the total. The top 10 Aid for Trade recipients in 2008 included just

three LDCs (Afghanistan, Bangladesh and the United Republic of Tanzania),

compared with four in 2007.

While important political and financial resources have been devoted to the

Aid for Trade and Enhanced Integrated Framework (EIF) initiatives, additional

resources would help integrate trade in development programmes (“trade main-

streaming”) and support measures to meet trade liberalization adjustment costs.

Preliminary estimates indicate that there is scope for increasing and improving

the targeting of resources to ensure that the countries in most need receive the

most aid. While more developing countries are taking ownership of the initia-

31

tives—as evidenced by the number of developing countries responding to the Aid

Elisa Garmberoni and R. Newfarmer, Aid for Trade: Matching potential demand and

31 supply, World Bank Policy Research Working Paper, No. 4991 (Washington, D.C.,

World Bank, July 2009). 41

Market access (trade)

Table 7 of US dollars and percentage)

Top Aid for Trade recipients in 2008 (millions

Rank Country Amount Rank Country Amount

1 India 3,254 11 Indonesia 871

2 Iraq 2,836 12 China 762

3 Turkey 2,421 13 Ethiopia 761

4 Viet Nam 2,033 14 Nigeria 729

5 Morocco 1,894 15 Ghana 654

6 Afghanistan 1,701 16 Thailand 640

7 United Republic of Tanzania 1,353 17 Tunisia 602

8 Bangladesh 1,240 18 Mali 591

9 Pakistan 1,126 19 Mozambique 542

10 Egypt 1,014 20 Mongolia 533

Top 10 recipients Top 20 recipients

Sub-total 18,873 Sub-total 25,559

Share in total country-allocable Aid Share in total country-

for Trade 51.8 allocable Aid for Trade 70.2 Source: UN/DESA, based on

Share in total Aid for Trade 45.3 Share in total Aid for Trade 61.3 OECD/DAC data.

for Trade WTO/OECD questionnaires in 2009, where most of them indicate a

growing trend towards integrating trade into their national development strate-

gies—increased funding would ensure that country-based formulations of trade-

related needs and priorities meet strengthened donor response.

For countries whose trade-related needs and priorities have not been iden- Developing countries

require further assistance

tified, an important step would be for the Government to conduct appropri- to support their “trade

ate national needs assessments. There is recognition that some countries require mainstreaming” efforts

technical and financial assistance to support this process, leading to the develop-

ment of a concrete action plan that would include specific projects to overcome

identified constraints as well as adjustment measures that would constitute a basis

for capturing additional support from development partners. Essential to this

32

process is the reflection of these assessments in national development strategies,

around which donors programme their financial support.

Strengthening the global partnership in

international trade

A global partnership for development on trade that will effectively deliver

improved market access for developing countries can make the difference

between weak and dynamic contributions of trade to growth and efforts to meet

the MDGs by 2015.

D. Gay, A. Mbonde and M. Riva, Aid for Trade and Human Development: A Guide to

32 Conducting Aid for Trade Needs Assessment Exercises (United Nations publications, Sales

No. E.09.III.B.28).

42 The Global Partnership for Development at a Critical Juncture

Actions required at the national and international levels to ensure and further

improve market access for developing countries include the following:

y

y Intensify efforts to conclude, within a realistic time frame, a development-

oriented Doha Round of trade negotiations in order to effectively establish a

more open, equitable, rule-based, predictable and non-discriminatory multi-

lateral trading system

y

y Ensure that developing countries, especially the most vulnerable among

them, are given the support needed to strengthen their production and trad-

ing capacities in a flexible manner as part of broader development strategies.

Developing such country capacity is a function of both domestic policy choices

and international support and requires that:

ƒ

ƒ Developing countries continue to prioritize trade and its links to develop-

ment and poverty reduction in national development strategies

ƒ

ƒ Donors accelerate delivery on existing aid commitments, including through

renewed technical, financial and political support to the Aid for Trade ini-

tiative, as well as through increased support to the Enhanced Integrated

Framework, which is the entry point for LDCs in accessing Aid for Trade

y

y Ensure that protectionist measures taken as a response to crises are disman-

tled and that further measures, including new forms of non-tariff barriers, are

resisted

y

y Accelerate delivery on the commitment made by developed countries in 2005

to eliminate, by 2013, all agricultural export subsidies and other support meas-

ures with equivalent effect, in order to increase the ability of developing coun-

tries to produce and export agricultural products competitively

y

y Accelerate progress towards the full implementation of DFQF market access for

all products exported by LDCs, which remains critical for accelerating employ-

ment creation in LDC export sectors, and combine this with the creation of

more simplified rules of origin 43

Debt sustainability

When the United Nations Millennium Declaration was adopted in 2000, many

developing-country Governments, especially those of low-income countries and a

number of middle-income countries, were suffering under unsustainable external

debt burdens. The international community had already established the Heavily

Indebted Poor Countries (HIPC) Initiative in 1996 to address the debt problems

of a group of low-income countries in a comprehensive manner. The Initiative

was enhanced in 1998, but by 2000 was still not providing sufficient relief. In

addition, in lieu of the 1990s bailouts in Asia and elsewhere, the international

community had begun to develop a new international policy to push for coop-

erative “private sector involvement” in workouts from sovereign debt crises of

middle-income countries, whereby private creditors might take losses in debt

restructurings. However, it was recognized at the time of the Millennium Decla-

ration that the HIPC and other initiatives were incomplete. Ten years later, they

remain incomplete.

Yet, the debt situation seemed to improve as the decade evolved, at least After experiencing

improvements over the

until strains were revealed by the global financial and economic crisis. First, last decade, the debt

the HIPC Initiative was complemented in 2005 by the Multilateral Debt Relief situation of many countries

Initiative (MDRI), which provided 100 per cent relief on eligible debt owed deteriorated during

by selected low-income countries to participating multilateral financial institu- the crisis

tions. Second, the debt difficulties of individual middle-income countries, mainly

involving obligations to private creditors, were being resolved through debtor-

organized market swaps of new bonds for old debts. Regardless of whether relief

was adequate to return the countries to sustainable situations, the countries did

regain access to financial markets. Subsequently, external government debt bur-

dens of many developing and transition economies eased in mid-decade, helped

by favourable trends in world trade and commodity prices and low interest rates.

After 2008, however, the debt burdens of many countries worsened again. As

some countries entered the crisis in less robust conditions than others, the risk of

debt distress in those weaker countries grew.

While it is to be hoped that debtor countries will be able to weather the

strains, it is best to be more adequately prepared and thus to return to the ques-

tion of developing a broad international framework to handle debt crises in a

comprehensive and equitable manner as and when they arise, thereby delivering

fully on the MDG 8 commitment to enable the international system to “deal

comprehensively with the debt problem of developing countries”. The international

Policies undertaken and policies promised community has

progressively made

The international community pursued three tracks of debt-related reform in the efforts to make debt more

wake of the Millennium Declaration. The first was to focus on the commitment sustainable

to help Governments of eligible low-income countries covered by the HIPC Ini-

tiative reach sustainable external debt situations. This required successive rounds

44 The Global Partnership for Development at a Critical Juncture

of ever-deeper relief, as the official creditors of these countries repeatedly discov-

ered that their promised degrees of relief were insufficient. In the end, the major

traditional government creditors, members of the Paris Club, and the multilateral

institutions covered by the MDRI virtually eliminated the bulk of outstanding

HIPC debt.

The second track was to step up international assistance to help debtor

countries manage their sovereign debt more effectively and provide guidance

to official creditors of low-income countries on when it would be excessively

risky to lend, rather than offer assistance in the form of grants. To this end, the

International Monetary Fund (IMF) and the World Bank developed a specific

debt-sustainability framework for low-income countries. IMF defined a separate

framework for countries that access a significant volume of funds from interna-

tional financial markets. These frameworks have not only focused policy attention

in developing and transition economies on their evolving external and total public

debt situations, but they have also prompted a considerable increase in public

information on sovereign indebtedness, as publication of the debt assessments

has become standard practice. Nevertheless, the frameworks are best understood

as broad indicators to inform policy discussion, as they necessarily involve an

amount of subjectivity. Indeed, the methodology is periodically reviewed and

revised, most recently at the urging of the Group of Twenty (G-20) in April 2009

as regards the low-income country framework.

1

The third track considered the creation of a comprehensive sovereign debt

workout mechanism that would seek sufficient restructuring of a crisis country’s

debt obligations to eliminate the Government’s insolvency and give it a “fresh

start”. Such a mechanism would also aim to apportion the burden of relief fairly

among a Government’s creditors, including various categories of private creditors.

The HIPC Initiative was a nascent form of such an approach, but it was meant as

a one-time exercise and not as a precedent for treating sovereign debt in general.

The Monterrey Consensus adopted at the International Conference on Financ-

ing for Development in 2002 promised to tackle this problem, as has each major

United Nations meeting on economic and financial issues since then, including

the June 2009 Conference on the World Financial and Economic Crisis and its

Impact on Development. A partial step in this direction was taken by the Paris

2

Club when it adopted its “Evian Approach” in 2003, whereby it offered to take

3

the lead in deciding on the need for comprehensive debt relief of non-HIPCs in

crisis and, if deemed necessary, formulate in cooperation with IMF a comprehen-

See World Bank International Development Association and International Monetary

1 Fund, “Staff guidance note on the application of the joint Bank-Fund debt sustainabil-

ity framework for low-income countries”, 22 January 2010, available from http://web.

worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:

22482307~menuPK:4876135~pagePK:64166689~piPK:64166646~theSitePK:469043

~isCURL:Y,00.html.

See, respectively, Report of the International Conference on Financing for Development,

2 Monterrey, Mexico, 18-22 March 2002 (A/CONF.198/11, chapter 1, resolution 1,

annex), para.60, and General Assembly resolution 63/303 on the Outcome of the Con-

ference on the World Financial and Economic Crisis and its Impact on Development

(annex), para. 34.

On the approach in general, see Paris Club, “Evian Approach”, available from http://

3 www.clubdeparis.org/sections/types-traitement/reechelonnement/approche-d-evian/

switchLanguage/en. 45

Debt sustainability

Figure 12 a

Fiscal balances of developing and transition economies, 2005-2009

of gross domestic product)

(percentage

2 All countries

Low income

1 Lower middle income

Upper middle income

0

-1

-2

-3 Source: UN/DESA, based on

-4 data provided in the April 2010

IMF World Economic Outlook

-5 database.

World Bank country

a

groupings.

-6 2005 2006 2007 2008 2009

sive debt workout package designed to apply on a comparable basis to all bilateral

official and private creditors. A more systematic reform proposal, the sovereign

4

debt restructuring mechanism, was proposed at IMF but rejected in 2003, largely

owing to opposition from stakeholders in financial markets. No further propos-

5

als have since been discussed in any official international forum.

The global crisis and developing-country debt

The global financial and economic crisis affected developing and transition econ- Fiscal positions have

deteriorated

omies across the board in ways that impacted their public debt situations. Many

Governments pursued counter-cyclical expenditure increases or did not curtail

expenditures in proportion to the cyclically related fall in tax revenues. In either

case, the result was expanded government deficits, as may be seen from figure 12.

A key indicator of external debt of developing countries regularly mon- There has been a reversal

in the declining debt-

itored under Goal 8 quickly reflected this development: the ratio of external servicing ratios seen prior

debt servicing—which comprises total foreign interest and principal payments to the crisis

due during a given year—to exports of goods and services rose. In addition to

expanding the debt on which debt servicing is paid, the global crisis weakened the

denominator of the ratio, owing to the impact of the global recession on foreign-

exchange earnings in many countries. As may be seen from figure 13, every

6

One recent such arrangement was agreed for Seychelles in April 2009 and accepted on

4 comparable terms by Malaysia and South Africa, its two main non-Paris Club bilateral

creditors; at the end of 2009, Seychelles also restructured its commercial debt.

See Sean Hagan, “Designing a legal framework to restructure sovereign debt”, George-

5 town Journal of International Law, vol. 36 (2005), pp. 299-402.

On average, the rise in the debt service-to-export ratio of developing countries resulted

6 from a drop of 21 per cent in export earnings, while debt-servicing obligations increased

by less than 4 per cent in 2009.

46 The Global Partnership for Development at a Critical Juncture

Figure 13

External debt-servicing ratios of developing and transition economies, 2000,

of exports of goods and services)

2007 and 2009 (percentage

2000 Developing and transition economies

2007 Developing regions

2009 East Asia

Oceania

Northern Africa

Sub-Saharan Africa

South Asia

South-East Asia

Western Asia

Latin America and the Caribbean

Source: UN/DESA, based on Commonwealth of Independent States

data provided in the April 2010

IMF World Economic Outlook Transition countries of South-eastern Europe

database. 0 10 20 30 40 50 60 70 80 90 100

region of the developing world was affected, albeit to different degrees, owing to

policy choices, borrowing opportunities or the degree of fiscal space within which

a Government was operating.

As may also be seen from figure 13, the debt-servicing ratios were generally

lower in 2007 and 2009 than they had been in 2000, except for the transition

economies. The World Bank estimated that the transition economies of Europe

and Central Asia were the most severely hit regions and are regarded as the most

vulnerable. The rapid expansion in finance (both domestic and external) in a

7

number of emerging European countries prior to the crisis exceeded their absorp-

tive capacity, spilling over into inflation and rising current-account deficits, and

eventually making these economies vulnerable to domestic and foreign shocks.

Other countries that had managed their debt more cautiously were in a healthier

condition when they entered the crisis, but they, too, had to adjust to a strong

negative shock.

For those Governments that borrow on international capital markets, the

first impact of the global crisis was felt in the cost of international borrowing.

In October 2008, average interest-rate spreads on developing-country sovereign

bonds reached a seven-year high of 874 basis points. Interest-rate spreads wid-

8

ened to more than 1,000 basis points in five countries (Argentina, Ecuador, Ka-

zakhstan, Pakistan and Ukraine). Meanwhile, virtually all the currencies in the

World Bank, Global Economic Prospects-Summer 2010: Fiscal Headwinds and Recovery

7 (Washington D.C., World Bank).

The convention in pricing international bonds is to compare the interest rate or yield

8 to a base rate given by what is deemed to be a riskless alternative (in the sense of its

having little chance of default), usually a United States Treasury bond of comparable

maturity. The “spread” above the riskless rate is measured in “basis points”, which are

one hundredth of a percentage point. 47

Debt sustainability

world depreciated against the United States dollar, with some developing-country

currencies losing more than 50 per cent of their value. This considerably increased

the burden of external debt service at precisely the same time as Governments

saw their revenue streams decline sharply. Across the board, developing countries

experienced credit downgrades from major international ratings agencies. This, in

turn, further increased the cost of borrowing and weakened many Governments’

fiscal positions. A few middle-income countries managed to limit the negative

impact of these developments as the Government (as well as corporations) was

able to rely more heavily on domestic currency bond markets. Many countries of

the developing world, however, were not in a position to draw on deep domestic

financial markets.

As the global crisis embodied a sudden and sharp decline in international International financial

institutions substantially

private financial flows, many countries suddenly faced balance-of-payments increased their lending …

financing problems and approached IMF for support. The Fund was able to

respond with additional resources and new flexibility in its lending arrangements

pursuant to the initiative of the G-20, as noted in the chapter on official devel-

opment assistance (ODA). In 2007, before the outbreak of the crisis, IMF gross

lending commitments stood at just $1 billion, but they had risen to $49 billion

in 2008 and to $120 billion in 2009. By the end of April 2010, 57 countries had

9

an IMF arrangement, including 30 low-income countries.

Other multilateral financial institutions also sharply increased their lend-

ing levels. The World Bank increased its gross commitments from $36.5 billion

in 2007 to $65 billion in 2009 to help countries cope with the crisis, a record

high for the global development institution. The main regional development

banks together increased their lending from $30 billion to $50 billion over the

same period.

10

The impact of the new domestic and external borrowing in response to the … leading to higher public

debt ratios

financial crisis is reflected in the higher ratio of public debt to gross domestic

product (GDP). After falling for several years, the ratios rose in 2009, as seen in

figure 14, which shows countries grouped by per capita income level. By the same

token, total external debt (including obligations of the private sector as well as

those of Governments) rose in 2009 for each of the country groupings. Nonethe-

less, and with few exceptions, these ratios are still below what they were in 2000.

Since mid-2009, however, the crisis has been abating and global economic Global economic recovery

has begun, but the outlook

recovery—albeit modest and fragile—has begun. Interest-rate spreads have

11 remains uncertain

shrunk considerably since the outbreak of the crisis, and credit rating agencies

have upgraded many sovereigns. There has been revived access to international

capital markets for both sovereign and corporate borrowers from some middle-

income countries, while a few countries (notably Chile and Brazil) have started

to attract large capital inflows again; but bank lending remains weak. Never-

12

theless, considerable volatility remains in international financial markets and

substantial uncertainty surrounds the global outlook.

Information provided by IMF staff.

9 World Bank and IMF, Global Monitoring Report 2010: The MDGs after the Crisis (Wash-

10 ington, D.C., World Bank, 2010), table 5.3.

See World Economic Situation and Prospects as of mid-2010 (E/2010/73).

11 See World Bank, Global Economic Prospects-Summer 2010, op. cit., and World Economic

12 Situation and Prospects as of mid-2010, ibid.

48 The Global Partnership for Development at a Critical Juncture

Figure 14A a

Public debt ratios of groups of developing and transition economies,

of GDP)

2005-2009 (percentage

60

All developing and

emerging economies

Low-income 55

countries

Lower middle income

countries 50

Upper middle income

countries 45

40

35

30 2005 2006 2007 2008 2009

Figure 14B a

External debt ratios of groups of developing and transition economies,

of exports)

2005-2009 (percentage

150

All developing and

emerging economies

Low-income 130

countries

Lower middle income

countries 110

Upper middle income

countries 90

70

50

30 2005 2006 2007 2008 2009

Source: UN/DESA, based on data provided in the April 2010 IMF World Economic Outlook database.

Note: Public debt includes domestic and foreign government debt; external debt includes foreign debt

of government and private borrowers.

World Bank country groupings.

a 49

Debt sustainability

Progress in providing debt relief under the HIPC

Initiative and MDRI

By the end of March 2010, of the 40 countries that were eligible or potentially Four countries have

reached their completion

eligible for debt relief under the HIPC Initiative, 28 had reached their “comple- points since June 2009

tion point” and were accorded the full relief programmed for them. They then

also qualified for additional relief from remaining multilateral obligations owed

to participating institutions under the MDRI. Seven countries were between

“decision” and “completion” points, wherein they receive interim relief, making a

total of 35 countries receiving at least some relief under the Initiative. In the year

since June 2009, four countries—Afghanistan, the Central African Republic,

Congo and Haiti—had fulfilled their conditions for the irrevocable debt relief

granted at the completion point of the HIPC process.

Owing to the HIPC Initiative and MDRI, as well as traditional debt relief

and other additional assistance, the debt burden of those 35 countries is expected

to be reduced by over 80 per cent compared to pre-decision-point levels. The

aggregate ratio of their debt-service payments to GDP has already declined from

3.2 per cent in 2001 to 1.0 per cent in 2009; perhaps indicative of the constraint

caused by unresolved debt difficulties prior to debt relief, poverty-reducing ex-

penditures in these countries increased on average from 6.3 per cent of GDP in

2001 to 8.9 per cent in 2009.

13

Nevertheless, not all creditors have been delivering on the programmed Smaller creditors have not

delivered on their promised

relief. The largest creditors—the World Bank, the African Development Bank, share of debt relief …

IMF, the Inter-American Development Bank and Paris Club members—have

provided debt relief in line with their commitments under the HIPC Initiative.

As of 2009, however, other creditors have delivered or agreed to provide only a

partial share. Smaller multilateral institutions, accounting for 14 per cent of the

total cost of HIPC debt reduction, have committed to delivering relief to HIPCs

at their completion points. According to a survey conducted in 2009, 7 of the

20 multilateral creditors that responded indicated that they had delivered half or

more of their relief during the interim period. Non-Paris Club bilateral official

creditors, representing about 13 per cent of the total cost, have provided about

35-40 per cent of their programmed relief, although the overall total masks quite

diverse results as close to half of those creditors have not delivered any relief at all.

Commercial creditors, accounting for 6 per cent of the total cost, have provided

an estimated 33 per cent of expected relief.

14

To complicate matters further, a number of commercial creditors have initi- … and commercial

creditors have initiated

ated litigation against some of the HIPCs, aiming to collect fully on the original lawsuits

obligations. Over the past two years, at least 12 HIPCs have been targeted in at

least 54 commercial creditor lawsuits. The amounts claimed by creditors have

totalled just over $2.6 billion. Most cases have been settled out of court, includ-

ing through creditor participation in highly discounted debt buyback operations

World Bank, “Debt relief ”, April 2010, available from http://web.worldbank.org/

13 WBSITE/EXTERNAL/NEWS/0, contentMDK:20040942~menuPK:34480~pageP

K:34370~theSitePK:4607,00.html (accessed on 11 May 2010).

World Bank IDA and IMF, “Heavily indebted poor countries (HIPC) initiative and

14 multilateral debt relief initiative (MDRI)—status of implementation”, 15 Septem-

ber 2009, available from http://www.imf.org/external/np/pp/eng/2009/091509.pdf,

pp. 17-19.

50 The Global Partnership for Development at a Critical Juncture

through the World Bank’s Debt Reduction Facility (14 cases remained as of Sep-

tember 2009, although new cases could still be filed). In some cases, judgements

in favour of the creditors have been awarded for the full amounts claimed. Mean-

while, multilateral organizations and several creditor Governments have intro-

duced legislation at the national level or other initiatives to curb such activities.

15

When official creditors give HIPC debt relief, in essence they remove a

debt claim from their books in exchange for another asset. Reduction of bilateral

and multilateral debt under the HIPC Initiative thus represents a budgetary

cost. Such cost is estimated to total almost $76 billion, measured in end-2009

net present value (NPV) terms, of which $58.5 billion has already been com-

16

mitted to cover the relief of the 35 countries that have passed the decision point.

Multilateral institutions and Paris Club creditors account for the largest share (45

per cent and 36 per cent, respectively) of the total cost of the HIPC Initiative.

Similarly, an additional $27 billion in present value terms has been provided

under the MDRI, of which about 85 per cent has already been delivered to

the post-completion point HIPCs as well as to two non-HIPCs (Cambodia and

Tajikistan) to which IMF extended its component of the MDRI. IMF esti-

17

mates that adequate resources are at hand to cover remaining multilateral HIPC

and MDRI relief commitments to the 35 countries, but substantial additional

resources will be required when Somalia and the Sudan are ready to embark on

the HIPC Initiative. The total cost of the MDRI is expected to increase to $31

18

billion in end-2009 present value terms if all 40 countries reach the completion

point under the HIPC Initiative.

Only five countries, including Somalia and the Sudan, have been approved

Extending the HIPC

Initiative to include to enter the HIPC process under current policy (the others are the Comoros, Eri-

countries vulnerable trea and Kyrgyzstan). After several extensions, the “sunset clause” on the HIPC

to debt distress Initiative was fixed for the end of December 2006. Countries that are currently

could constitute not listed as eligible, or potentially eligible, may not be added under current

a short-term option policy. This means that no low-income country with debts that subsequently

19

become unsustainable, owing to the recent global economic crisis, for example,

will be able to draw upon HIPC/MDRI debt relief. Extending the sunset clause

could serve as a short-term option for dealing with the debt distress of low-income

countries that did not receive relief under HIPC/MDRI.

For example, in 2008, the European Union (EU) secured a commitment from all 27 EU

15 Member States not to sell official debt claims on the secondary market, and Paris Club

creditors have agreed to a similar measure. The African Development Bank recently

launched the African Legal Support Facility to provide technical legal advice. The Com-

monwealth Secretariat operates a Legal Debt Clinic for HIPCs which offers a resident

legal advisor to countries facing commercial creditor litigation.

As much of the HIPC debt had been extended on concessional terms, the value of the

16 claim to the creditor, namely, today’s value of the cash flow of the loan over time, is

less than the face value of the debt. The “net present value” of a concessional loan is an

estimate of the value of a market-rate debt that would produce a cash flow equivalent

to the actual concessional loan.

World Bank IDA and IMF, “Heavily indebted poor countries ”, op. cit., pp. 11-14.

17 IMF, “Update on the financing of the Fund’s concessional assistance and debt relief to

18 low-income member countries”, 20 April 2010, pp. 16-17.

Myanmar is a possible exception in that suitable data were unavailable when the “ring

19 fencing” exercise was undertaken. It could therefore be included in the list of potentially

eligible countries upon availability of such data (IMF, “Preserving debt sustainability

in low-income countries in the wake of the global crisis”, 1 April 2010, p. 19). 51

Debt sustainability

Countries at risk of sovereign debt distress

While the debt situation of developing and transition economies in general Low-income and small,

vulnerable countries are

warrants ongoing monitoring, two groups of countries in particular seem to facing potential debt

be facing potentially difficult public debt scenarios at this time: low-income difficulties …

countries and small, vulnerable middle-income economies, which have not been

eligible to receive concessional resources from the major multilateral financial

institutions. When a Government has a large share of its debt in foreign cur-

rency, a seemingly sustainable debt-servicing burden can quickly turn into an

unsustainable one if the exchange rate depreciates dramatically, as can happen

when export earnings plummet or holders of wealth move their assets offshore.

In such a scenario, policymakers also have to be concerned about the exposure

of their banking systems to exchange-rate volatility, as Governments have had

to take responsibility for their banks during crises so as not to lose their essential

financial services.

In this context, results from recent country analyses, mainly under the joint

IMF/World Bank debt sustainability framework developed for low-income coun-

tries, are informative. The framework posits levels of the main debt ratios that are

said to signal low, medium and high risks of debt distress depending in part on

the World Bank’s judgement of the quality of the country’s economic policies and

institutions. For example, in the case of the countries deemed as having “medium

policy” quality, the benchmark level of the ratio of external public debt (meas-

ured in present value terms) to exports is 150 per cent, while the ratios relative

to GDP and government revenue are 40 per cent and 250 per cent, respectively.

In addition, debt-servicing obligations should be less than 20 per cent of exports

and under 30 per cent of government revenue. Countries deemed to have weaker

policies and institutions are assigned lower benchmark levels and, correspond-

ingly, stronger countries are assumed to be able to manage higher debt burdens.

However, the ratios are not applied to data of a particular year, nor are they

applied in a mechanical way. Rather, a view is taken of the expected time path of

the ratios in projection exercises for a “baseline” scenario, along with alternative

scenarios and “stress tests” which ask what happens if certain economic shocks,

such as a major devaluation, were to occur. The analytical question then posed is

whether the ratios breach the thresholds, and, if so, under what conditions and

whether the breach is temporary or long-lasting. 20

IMF and World Bank staff have reviewed the debt sustainability analy- … with many of them

classified as being in debt

ses undertaken since May 2009 (thus incorporating global economic forecasts distress or at high risk

as adjusted after the crisis) for 39 low-income or small, vulnerable economies

(benchmarks are not applied to middle-income countries but a judgement is

made of the debt dynamics). They recently classified 11 of the countries as being

“in debt distress” and 16 of them as being “at high risk of debt distress” (see

table 8). Debt distress is defined as having debt and debt-service ratios that are

judged significantly beyond the thresholds, as being in or close to having debt

restructuring negotiations or as being in the process of accumulating arrears.

High risk is defined as having a protracted breach of thresholds, but not yet

facing difficulties in making debt payments as they fall due. Not surprisingly,

21

For a detailed exposition on how Fund and Bank staff should apply the framework, see

20 World Bank IDA and IMF, “Staff guidance note”, op. cit.

IMF, “Preserving debt sustainability”, op. cit., p. 6.

21

52 The Global Partnership for Development at a Critical Juncture

Table 8

Low-income and small, vulnerable economies at high risk of

or in debt distress, 2010 a

In debt distress At high risk of debt distress

HIPCs HIPCs

Pre-decision point Post-decision point

Comoros Côte d’Ivoire

Eritrea Post-completion point

Somalia

Sudan

Source: IMF, “Preserving debt Afghanistan

sustainability in low-income Post-decision point Burkina Faso

countries in the wake of the Burundi

global crisis,” 1 April 2010, p. 17. Democratic Republic of Congo Gambia

Maldives, Saint Lucia

a Guinea Haiti

and Saint Vincent and the Guinea-Bissau Sao Tome and Principe

Grenadines are also included in Liberia

the list on account of high total Togo Non-HIPCs

public debt vulnerabilities,

defined to be a present value Djibouti

of public debt to GDP in excess Non-HIPCs Grenada

of 65 per cent. Dominica, Lao People’s Democratic Republic

whose ratio of the present Myanmar Maldives

value of public debt to GDP Zimbabwe Saint Lucia

experiences only a small and Saint Vincent and the Grenadines

temporary breach of this Tajikistan

threshold even under the Tonga

baseline scenario is, however, Yemen

not included in the list. pre-decision-point HIPCs are classified as in debt distress or at high risk since

that is a qualification for entering the HIPC Initiative. However, it is noteworthy

that six post-completion point HIPCs are also classified as high risk. It is of note

also that several small, vulnerable economies are assessed as being at high risk.

Indeed, two countries not on this list, namely Jamaica and Seychelles, would have

been if not for the debt restructuring packages recently agreed with their official

and private creditors.

The IMF and World Bank staff suggests that the debt situation of the 27

countries identified in table 8 could be handled without taking extraordinary

measures, such as debt restructuring, albeit under certain assumptions. First, the

countries concerned would need to receive an increased share of their external

funding in the form of grants instead of loans, or at least have a larger grant

element in their loans. Indeed, provision of international assistance in the form

of grants to low-income and high-risk countries during general periods of stress

is warranted, as is offering moratoria on debt-servicing obligations (an example

being the Fund’s waiving of interest payments on its concessional loans until the

end of 2011). Second, stricter fiscal adjustment would be needed, while protect-

ing “priority spending”. Nonetheless, the need for debt relief for at least some

22

of these countries should not be ruled out.

In addition, the 27 countries identified by the IMF/World Bank analysis

might not be the only countries that potentially need debt restructuring. As indi-

cated above, the debt sustainability analysis as a result of which these countries

Ibid., pp. 22-25.

22 53

Debt sustainability

were identified was based on the global economic outlook of IMF. The Fund,

like the United Nations and the World Bank, and most private forecasters, has

assigned a good measure of uncertainty to its recent forecasts. Indeed, it is pos-

sible that the world will experience a “double dip” recession and another round

of financial turmoil. In other words, there may be even more than 27 low- or

middle-income countries that are or could become vulnerable to debt difficulty

in the short to medium term.

The way forward: bridging the gaps in the

international debt architecture

The conclusion that a number of countries may need sovereign debt restructur- No comprehensive

sovereign debt workout

ing in the coming years underlines the point made above that the world lacks a mechanism exists

comprehensive mechanism within which to treat sovereign debt crises adequately.

Several post-completion point HIPCs are on the list of vulnerable countries, but

they have exited from the HIPC process. These countries may apply to the Paris

Club for treatment under the Evian Approach outlined above. However, Paris

Club members themselves, which have already written off or reduced their claims

against these countries, are unlikely to be major creditors at this point. It is not

clear whether non-Paris Club creditors (bilateral or private) would be willing to

accept the terms for relief on the grounds of “comparability” set by minor credi-

tors of a country in crisis.

The lack of an international forum in which post-HIPCs can seek a com-

prehensive debt-crisis workout, should they need it, is not unique. No general

international sovereign insolvency mechanism exists. Sovereign bankruptcies

are settled, but not necessarily in an efficient or fair manner. Indeed, sovereign

insolvency is treated differently than non-sovereign insolvency: whether under

HIPC, the Paris Club, or the usual ad hoc arrangements, the creditors of the

insolvent Government determine the debt workout. The exception is when the

biggest debtors default and owe so much that they acquire countervailing power,

such as that exercised by Argentina after its default in 2001. However, neither

creditor nor debtor power is the appropriate model; rather, there should be over-

sight of negotiations between the parties by an independent authority (judge or

arbitrator) who does not have a stake in the outcome. That is the usual model

within countries for workouts from corporate or personal bankruptcy, and it is a

compelling one. There is also no shortage of ways in which such a model could

be made operational. 23

Such an authority could also be instructed by the international community

to take account of principles that would be agreed internationally for effective

and fair debt workouts, including guidance in how to treat the impact of debt

obligations on the ability of the Government to reach the MDGs and other devel-

opment goals. Broad statements of the main principles have already been agreed,

including that the workout embodies “fair burden-sharing between public and

private sectors and between debtors, creditors and investors” and that it “engage

debtors and creditors to come together to restructure unsustainable debts in a

See, for example, Barry Herman, José Antonio Ocampo and Shari Spiegel, eds., Over-

23 coming Developing Country Debt Crises (New York and Oxford, Oxford University Press,

2010).

54 The Global Partnership for Development at a Critical Juncture

timely and efficient manner”; and also, as implied by the target of Goal 8, that

24

it not impede a country’s progress towards achieving the MDGs and sustainable

and equitable development.

More generally, the international community has a legitimate interest in

Debt sustainability

frameworks need to be sovereign debt management by individual countries owing to the possibility that

more flexible a Government’s debt difficulties might disrupt international financial stability.

It thus mandates IMF to engage in dialogue with national authorities on their

debt sustainability, a function carried out in cooperation with the World Bank

with respect to low-income developing countries. The flexibility recently added

to the framework for assessing sustainability in low-income countries is a step

in the right direction. The methodology might evolve further with additional

scenarios (in particular for countries accessing capital markets) that take more

explicit account of interactions among countries, possibilities of contagion, and

consequences of deepening regional integration. Ultimately, while the scenarios

analysed for low- and middle-income countries might continue to differ, along

with their primary sources of funding, there seems no analytical reason for a

separate approach employing mechanistic benchmarks exclusively for low-income

countries.

The main objective, after all, should be to assist Governments in manag-

The international

community provides ing their debt effectively in the context of their macroeconomic management,

assistance to countries to medium-term fiscal frameworks and development strategies. In this regard, the

manage their debt better results of analyses of debt dynamics could help inform assessments of the impact

of prospective public debt-servicing obligations on a country’s ability to attain the

MDGs. In fact, the international community already provides significant debt

25

management assistance to countries through, for example, the Debt Management

and Financial Analysis System (DMFAS) of the United Nations Conference on

Trade and Development, the Commonwealth Secretariat’s Debt Recording and

Management System, and the Debt Management Facility of the World Bank.

These systems aim to help countries both to collect complete, timely and accurate

debt statistics and to manage public debt exposure to reduce the risk of debt-

servicing difficulties.

These considerations point to a number of actions that are warranted at national

and international levels:

y

y The impact of debt obligations on progress towards the achievement of the

MDGs should be taken into account in the debt sustainability frameworks, as

proposed in the Monterrey Consensus. It is thus recommended that a technical

working group of relevant stakeholders, including the Bretton Woods insti-

tutions, be convoked—taking advantage of international discussion modali-

ties developed in the financing for development process—to consider how

the interrelationships of public debt, medium-term fiscal frameworks and the

MDGs might better be taken into account in debt sustainability analyses

Report of the International Conference on Financing for Development …, op cit., paras. 51

24 and 60.

“Future reviews of debt sustainability should also bear in mind the impact of debt relief

25 on progress towards the achievement of the development goals contained in the Millen-

nium Declaration” (Report of the International Conference on Financing for Development,

op. cit., para. 49). 55

Debt sustainability

y

y Bilateral donors and multilateral institutions should increasingly provide their

ODA resources in grant form to low-income countries that have significant gov-

ernment debt burdens

y

y Countries seriously affected by the financial crisis, external shocks, conflict and

natural disasters should be offered the option of moratoria on debt-service

obligations based on agreed, standardized criteria

y

y All of the country arrangements under the HIPC Initiative must be fully and

urgently concluded. This requires not only that all HIPCs make adequate

progress on “completion point” requirements, at which time full relief is

accorded, but also that all government and institutional creditors deliver their

full share of programmed relief promptly

y

y Efforts of private holders of HIPC debt to collect unethical, if not illegal, claims

must be impeded

y

y Having recognized the need to explore enhanced approaches to sovereign

debt restructuring as outlined in the Monterrey Consensus and reiterated in

the Doha Declaration on Financing for Development, an expert group of multi-

stakeholders should be convened to prepare alternative proposals for consid-

eration by the international community, taking advantage of international dis-

cussion modalities developed in the financing for development process

y

y Pending the creation of a strengthened international mechanism, innovative

forms of debt crisis resolution should be considered, including the following:

ƒ

ƒ Setting up schemes of independent arbitration or mediation, or providing

further support in organizing ad hoc meetings of a debtor with its creditors

ƒ

ƒ Extending and re-opening eligibility to participate in the HIPC Initiative;

that is to say, extending the HIPC Initiative’s sunset clause following the

adaptation of criteria and clauses for potential inclusion of any low-income

and lower-middle-income country vulnerable to debt distress 57

Access to affordable essential

medicines

Improving access to affordable essential medicines is critical for the achievement

of the Millennium Development Goals, particularly MDGs 4, 5, and 6. Since the

MDG Gap Task Force began monitoring the situation in 2007, there have not

been any clear improvements on average in access to essential medicines in devel-

oping and transition economies. In many countries, availability remains grossly

inadequate and prices are high, making medicines unaffordable to large sections

of the populations of developing countries. The impact of the global economic

crisis on access to essential medicines has been uneven. Although pharmaceutical

expenditures have not fallen globally, they have decreased in several countries, in

particular, the Baltic States. In addition, national and international programmes

for the treatment and mitigation of HIV/AIDS have been directly affected in the

form of less funding.

The obstacles to increased access to essential medicines are multifaceted and

exist at national, regional and international levels. Challenges include constraints

to public financing, intellectual property law and policies, the cost of active phar-

maceutical ingredients, limited health-care expertise, the provision of adequate

health and pharmaceutical supply and distribution systems, and technological

and other health-care delivery constraints.

Availability and prices of essential medicines

Developing countries continue to face low availability and high costs of essential Low availability and high

prices persist

medicines. On average, 42 per cent of facilities surveyed in the public sector had

essential medicines available and 64 per cent in the private sector, showing little

improvement in 2001-2008. The median prices for drugs in developing coun-

1

tries are on average 2.7 times higher than international reference prices in the

public health-care sector and 6.3 times higher in the private sector (see figure 15).

The availability of essential medicines to treat chronic diseases (such as Medicines to treat chronic

diseases are less available

cardiovascular and respiratory diseases and diabetes) is particularly low. Generic than those for acute

medicines used for chronic diseases have been found to have significantly lower diseases …

availability than those used for infectious or acute diseases in both the public (36

per cent versus 53.5 per cent) and private sectors (55 per cent versus 66 per cent). 2

In low-income and lower-middle-income countries, the availability rate of medi-

World Health Organization, using WHO/HAI standard methodology and data from

1 surveys of medicines and their availability, available from http://www.haiweb.org/medi-

cineprices/.

Data provided by WHO based on a comparison of the availability of 30 commonly used

2 medicines for acute and chronic conditions in 40 developing countries, using informa-

tion obtained from standard facility-based surveys.

58 The Global Partnership for Development at a Critical Juncture

Figure 15

Ratio of consumer prices to international reference prices for selected generic

medicines in public and private health facilities during the period 2001-2008

30

Public sector

Private sector 25

Maximum

Mean 20

Minimum

Source: World Health 15

Organization, using WHO/

HAI standard methodology

and data from surveys of

medicines and their availability 10

(http://www.haiweb.org/ 8.7 7.9

medicineprices/). 7.4

7.1

Note: The numbers indicated 5

above the regions denote 4.2 3.6

the number of countries 3.2

2.8

2.8 2.7

2.6

2.4

in the sample. 1.0

0 1 3 11 13 2 6 2 4 6 9 2 8 0 1

Western

Central East, South- Oceania

Northern Sub-Saharan Central and Asia

Asia Asia

Africa Africa South

America

cines for treatment of acute illnesses was four times that of medicines for chronic

diseases. In Africa, the differential is nine times. These gaps in availability by types

of medicine are not commensurate with differences in the prevalence of acute ill-

nesses and chronic diseases. Chronic diseases are the cause of 60 per cent of total

mortality globally, 40 per cent of total mortality in low-income countries and 25

per cent of total mortality in Africa.

Poor availability of medicines to treat chronic disease has negative eco-

… and can lead to negative

economic consequences nomic consequences. Chronic diseases tend to put a heavy burden on households

owing to protracted health-care needs and lower income due to lost working days

and decreased labour productivity. Higher prevalence of these chronic diseases

also means a higher cost for health systems and limits the economic growth

potential of the economy at large. 3

More progress has been made in the fight against acute diseases in develop-

ing countries, but new problems have arisen. For example, antiretroviral therapy

as a prevention strategy for HIV, like the highly active antiretroviral therapy

(HAART), has had a significant impact on reducing the viral load of patients

living with HIV. This is supported by observational studies that find a correlation

between low viral loads and a reduced risk of transmitting HIV to sexual part-

ners. The relationship between lower viral load and reduced risk of transmission

has also been observed in some studies of HIV-positive women breastfeeding

their HIV-negative children. 4

WHO, Preventing Chronic Diseases: A Vital Investment (Geneva, WHO and Public

3 Health Agency of Canada, 2005), available from http://www.who.int/chp/chronic_dis-

ease_report/full_report.pdf.

Global Advocacy for HIV Prevention, “Fact sheet: treatment as prevention”, January

4 2010, available from http://www.avac.org/ht/a/GetDocumentAction/i/5855. 59

Access to affordable essential medicines

However, multidrug-resistant tuberculosis (MDR-TB) and extensively Treatment of acute diseases

faces new problems

drug-resistant tuberculosis (XDR-TB) are posing new threats. According to a

2008 World Health Organization (WHO) report on anti-tuberculosis drug

resistance, MDR-TB has been shown to be almost twice as common in tubercu-

losis patients living with HIV compared with tuberculosis patients without HIV. 5

The report also found that XDR-TB, a virtually untreatable form of the respira-

tory disease, has been recorded in 45 countries. The treatment costs of MDR-TB

can be as much as one hundred times the cost of first-line tuberculosis treatment,

while fatality cases for MDR-TB and XDR-TB amount to over 90 per cent.

Affordability of essential medicines

The low availability of medicines in the public sector may either deprive patients of Even generic medicines

are unaffordable in many

treatment or lead them to purchase medicines in the private sector, where they are developing countries

often more expensive, thus compounding the problem of access. Figure 16 shows

the cost of a course of treatment of an adult respiratory infection with the antibiotic

ciprofloxacin expressed in terms of the number of days’ worth of earnings of the

lowest-paid government worker. A cost of one day’s salary for this type of worker

6

would be considered “affordable” in most cases. It must be kept in mind, however,

that large sections of the populations in low- and middle-income countries earn

considerably less than do government workers. Consequently, the true extent of the

affordability constraints is likely to be underestimated using this indicator. Figure 16

shows that even when lowest-priced generic medicines are used, treatment with

the above antibacterial costs over one day’s wage in nearly all countries studied and

over two days’ wages in half of the countries. This suggests that the treatment is not

affordable in many countries, even with the cheapest generic medicines.

However, costs are even higher and affordability decreases further when

originator brands are used. Treatment with the brand product would cost the low-

est paid government worker over ten days’ wages in the majority of the countries

studied. In Armenia and Kenya, more than one month’s salary would be needed

to purchase this treatment. In none of the countries studied was the treatment

with brand medicines worth less than two days’ wages. This reveals that, in the

countries studied, treatment with brand medicines was consistently unaffordable

not only for the lowest paid government workers, but also for most people of low

income. The case of combating malaria in Uganda shows how the introduction

of a more effective drug may reduce affordable access (see box 1).

National expenditures on pharmaceuticals

in the private and public sectors

Enormous gaps remain in pharmaceutical expenditures between developed and The gap in the level

of pharmaceutical

developing countries. Across a sample of 161 countries, average spending per capita expenditures remains large

ranged from $7.70 in low-income countries to $434.70 in high-income countries in

WHO, “Anti-tuberculosis drug resistance in the world: fourth global report” (WHO/

5 HTM/TB/2008.394), available from http://www.who.int/tb/publications/2008/drs_

report4_26feb08.pdf.

The data are for a seven-day course of ciprofloxacin (500mg capsule/tablet, twice daily).

6 See A. Cameron and others, “Prices, availability and affordability”, in World Medicines

Situation Report 2010 (Geneva, WHO, forthcoming).

60 The Global Partnership for Development at a Critical Juncture

Figure 16

Number of days’ wages needed by the lowest-paid government worker to pay

years)

for treatment of adult respiratory infection (various

Originator brand Thailand*

Lowest-priced generic Fiji*

South Africa**

Peru

Ukraine

Nicaragua

Yemen

Philippines 30.8

Kenya

Source: WHO, using WHO/ Indonesia

HAI standard methodology United Arab Emirates

and data from surveys of Pakistan

medicines and their availability Nigeria

(http://www.haiweb.org/

medicineprices/). Lebanon

Note: Seven-day course of Kazakhstan

treatment with a 500mg Jordan

ciprofloxacin capsule/ 47.6

tablet taken twice daily. Armenia

* Less than 0.1. El Salvador

** Results of a subnational Morocco

survey conducted in Kuwait

Gauteng province. 0 2 4 6 8 10 12 14 16 18 20

1 day's w age

2005-2006, with considerable variation between countries in each income group.

7

Both public and private spending on medicines per capita increased from 1996 to

2006 in all income groups except the low-income group, for which public spending

on medicine per capita first decreased in 2000, then increased in 2006 (see figure 17).

The increase in private spending was faster than that of public spending in middle-

income countries, whereas the opposite is the case for high-income countries.

Impact of the global economic crisis

on the pharmaceutical sector

The global financial crisis may have had a considerable impact on government

Overall consumption

of medicines did not budgets and the available funding for health services. Past economic recessions,

8

decline despite the global in particular the 1997 Asian financial crisis, have shown that the impact on pub-

economic crisis ... lic health and pharmaceutical expenditures can be severe. However, evidence of

the impact of the present crisis is mixed. In global terms, little or no decline in

pharmaceutical consumption was observed, except in the Baltic States and other

parts of Europe. Even before and during the crisis, prices increased in almost all

9

See WHO National Health Accounts database, available from http://www.who.int/

7 nha/en/ and http://www.who.int/whosis/en/index.html.

I. Buysse, R. Laing and A. K. Mantel-Teeuwisse, “Impact of the economic recession on

8 the pharmaceutical sector”, mimeo, February 2010.

WHO, “Fourth quarter 2009 update: tracking the effect of the economic crisis on phar-

9 maceutical consumption, expenditures and unit prices”, available from http://www.

who.int/medicines/areas/policy/imsreport/en/index.html. 61

Access to affordable essential medicines

Box 1.

Introducing more effective antimalarial medicines in Uganda

Malaria is a serious health problem in Africa, particularly in Uganda where up to 50 per

cent of the country’s morbidity and mortality is attributable to malaria. National and

international willingness and ability to tackle malaria is at an unprecedented level.

New funding, tools and leadership have emerged, and an effective class of drugs,

artemisinin combination therapies (ACTs), have been developed which can replace

failing medicines. Since 2004, there has been a strong commitment in many countries

to making these products available in the public sector.

However, the cost of ACTs is many times more than older classes of drugs such as

chloroquine (CQ) and the previous recommended first-line treatment, sulphadoxine-

pyrimethamine (SP). ACTs are purchased for the public sector largely using interna-

tional funds, such as the Global Fund to Fight AIDS, Tuberculosis and Malaria, and are

provided free of charge to patients. However, ACTs are unaffordable for the majority

of the population if they are purchased out of pocket from the private sector. None-

theless, treatment for malaria is often sought through the private sector since it is not

always available in the public sector.

In 2007, a market survey was conducted to contribute to the development of effec-

tive, affordable, high-quality ACTs in malaria-endemic countries such as Uganda.

The results informed the design of international financing mechanisms to subsidize

the manufacturers’ price of ACTs, which are consequently expected to bring down

a

patient prices significantly. The study found that:

y

y ACT was provided free in public and mission facilities, but was available only in 50

per cent of public health facilities in some districts, many of which ran out of stock

before their next delivery

y

y As few as 4 per cent of private sector outlets in some districts stocked ACTs

y

y ACTs were up to 60 times more expensive than the older, ineffective medicines

y

y The poor could not even afford the price of the cheapest antimalarial (CQ) found

on the market

y

y A significant proportion of the population could not afford complete courses of

any antimalarial medicines, with only 50 per cent purchasing a full course of even

the lower-priced (but ineffective) ones

y

y Eleven days’ average household income was needed to purchase a single course a Medicines for Malaria

of ACT for a child 5 years of age Venture, Understanding

the Antimalarials Market:

y

y The equivalent of 1.5-2 months’ worth of basic food needs for the average house- Uganda 2007—An

hold would be needed to purchase its antimalarial medicine needs for one year Overview of the Supply Side

using the first-line recommended treatment (artemether-lumefantrine tablets (Geneva, MMV, August

20/120mg) 2008).

countries, which may indicate that despite declining incomes, households may

have absorbed much of the additional costs.

The countries with the greatest decline in pharmaceutical consumption … except in the Baltic

States and some other

were Estonia, Latvia and Lithuania, where consumption fell at least 17 per cent countries

during the latter half of 2009 compared with the beginning of 2008. Malaysia,

Mexico, Romania, the Russian Federation and Ukraine also showed important

declines in pharmaceutical consumption.

Price increases were observed in nearly all countries, however. When com-

pared with the first quarter of 2008, high-income countries had a relatively mod-

est price increase of 5 per cent during the last quarter of 2009, while low-income

countries had an increase of 11 per cent and upper-middle-income countries 15

62 The Global Partnership for Development at a Critical Juncture

Figure 17

Public and private per capita spending on medicines by country groups, classified

purchasing power parity dollars)

by income level, 1996, 2000 and 2006 (in

300

Public sector high income

Private sector high income 254

Public sector upper 250

middle income

Private sector upper

middle income 200 190

Public sector lower 169

162

middle income 154

150

Private sector lower income 134

Public sector low income

Private sector low income 96

100 70

Source: L. Ye, P. Hernandez 59

and D. Abegunde, “Medicine 52 48

45

50

World

Expenditures” in 36 32

28 25

Medicines Situation Report 17

17

15 13

2010 (Geneva, WHO, 9

5 5

4

forthcoming). 0 1996 2000 2006

per cent. In Europe, Romania had the biggest price increase, 39 per cent, followed

by Estonia and Latvia with an increase of 21 per cent and 11 per cent, respectively.

With the exception of European countries, pharmaceutical expenditures

increased throughout the study period. In low-income countries, the increase

was 31 per cent on average comparing the last quarter of 2009 with the begin-

ning of 2008. Among middle-income countries, China’s expenditures increased

Box 2.

Impact of the economic crisis on HIV/AIDS programmes and services

The global economic downturn continues to have a negative impact on HIV programmes

in most low- and middle-income countries, although the severity of the impact has var-

ied from one country to another. The capacity to respond to the AIDS epidemic has

decreased in developing countries because of falling household incomes and reduced

government revenues which have led to cuts in budgets for HIV/AIDS programmes.

Cuts in budgets for HIV treatment programmes have been reflected in reductions in

non-salary expenditures in the public health sector; shortages in antiretroviral (ARV)

a

medicines, including those provided through external aid; and worsening nutrition.

The budget restrictions are making it increasingly difficult to meet the demand for treat-

ment. By the end of 2008, only about 4 million people living with HIV/AIDS in low- and

middle-income countries in need of antiretroviral therapy (ART) were receiving it, leav-

b

ing an additional 58 per cent of those in need without treatment. The situation is worse

for children living with HIV. Of the 730,000 children in low- and middle-income countries

under 15 years of age who were living with HIV and needed ART, only an estimated

c

275,700, or 38 per cent, were receiving it by end-December 2008. However, two coun-

tries in sub-Saharan Africa, namely, Kenya and Zambia, saw the total number of patients

on ART rise from a few hundred to nearly 250,000 by the end of 2008. South Africa’s

treatment coverage increased to about 700,000 patients living with HIV at the end of

2008, with an average of 20,000 patients being added during every month of 2009. 63

Access to affordable essential medicines

There are also increasing cost pressures. Emerging drug resistance has also led to

the introduction of more sophisticated and more expensive second- and third-line

ARVs which, by the end of 2008, had cost low- and middle-income countries several

times the price of first-line therapies. The median price of the four combinations

most widely used in first-line treatment (representing 91 per cent of the prescribed See World Bank,

a

“Averting a human

first-line treatments in low-income countries) was $143 per person per year in 2008. crisis during the global

Yet, the median cost of the most commonly used second-line regimen (didanosine, downturn: policy options

abacavir and ritonavir-boosted lopinavir) cost $1,105 per patient per year in low- from the World Bank’s

income countries and $2,192 in lower-middle-income countries. The cost of ART, Human Development

particularly the high price of several medicines under patent, remains a major bar- Network”, available from

http://siteresources.

rier to access. worldbank.org/

Negative effects anticipated from the economic downturn would slow countries’ NEWS/Resources/

progress towards reaching the treatment targets contained in their national strategic AvertingTheHuman

Crisis.pdf.

plans. This, in turn, could have negative consequences for HIV prevention. In South WHO, Joint United

Africa, for instance, budget shortfalls of over $100 million prompted the Minister of b

Nations Programme on

Health to announce in September 2009 that the country would be unable to meet HIV/AIDS (UNAIDS) and

its universal access target by 2011 unless additional funding could be found from United Nations Children’s

d

alternative sources. In its efforts to mitigate the negative effect of the downturn, Towards Universal

Fund,

Access: Scaling Up Priority

South Africa started an HIV Counselling and Testing (HCT) campaign in April 2010. HIV/AIDS Interventions in

The campaign aims to test 15 million people by June of 2011 in order to meet the the Health Sector:

national target of reducing new infections by 50 per cent and to provide treatment to Progress Report

80 per cent of the persons in need by the end of that year. South Africa’s antiretroviral September 2009 (Geneva,

treatment programme, which is the largest in the world, will further expand through WHO, 2009), available from

http://www.who.int/hiv/

a decentralized model, bringing services closer to where patients live. The ultimate pub/2009progress

goal of the programme is to enable all of the country’s 4,000 public health-care facili- report/en/.

ties to deliver ART. Pilot projects of this programme are already being implemented. Ibid.

c

As the HCT programme has only just started, it is too early to determine its impact. Médecins Sans

d

In contrast, many other national Governments have downsized ART coverage goals, Frontières, “Punishing

success? Early signs of a

e

as did Botswana, or have announced cuts in programme budgets, as did the United retreat from commitment

f

Republic of Tanzania. Furthermore, falling household incomes could reduce access to HIV/AIDS care and

to treatment programmes, as patients in need of ART can no longer afford to pay treatment”, available

for their travel to clinics or health centres that provide relevant treatment. There are from http://www.msf.

org/source/countries/

also increasing reports documenting that people are sharing or rationing their ARVs. africa/southafrica/2009/

In addition, the increased impoverishment of households may result in worsening aidsreport/punishing_

nutritional conditions and decreased access to water and sanitation, all of which tend success.pdf.

to undermine ART adherence and long-term treatment success. See “Botswana: bleak

e

outlook for future AIDS

More limited donor financing is affecting treatment programmes in low-income funding”, PLUS News

countries heavily dependent on such funding. In Ethiopia and Rwanda, close to report, 25 February 2009,

100 per cent of the cost of ART programmes is being paid by external donors. Glo- available from http://

bal funds are falling short of cash. The Global Fund to Fight AIDS, Tuberculosis and www.aidsmap.com/

Malaria has indicated that it expects a $4 billion gap in its budget needs for 2010. en/news/0E611AB8-

9920-4BB9-AF53-

The United States President’s Emergency Plan for AIDS Relief (PEPFAR) is unable D13F6B8987CD.asp.

g

to expand any of its programmes for at least the next two years. There is some See UNAIDS, “The

f

scope for mitigating the budgetary restrictions through efficiency gains by lower- global economic crisis

ing the costs of inputs, reducing waste, avoiding duplication in funding support and HIV prevention and

to programmes and improving the targeting of beneficiaries. ARV costs could be treatment programmes:

vulnerabilities and

lowered through, for instance, instituting better procurement practices, utilizing the impact executive

World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights summary: Tanzania”,

(TRIPS) flexibilities whenever possible, shifting some components of treatment serv- available from http://

ices to less expensive health personnel (also known as task-shifting) and reducing data.unaids.org/pub/

the number of patients lost to treatment follow-up. Countries should also explore Report/2010/20100204_

executivesummary_

other mechanisms for reducing medicine prices, including using market information tanzania_coverpage_

to negotiate lower prices with pharmaceutical companies, reducing import tariffs, final_40210_en.pdf.

increasing economies of scale and bargaining power through joint (or “pooled”) Médecins Sans

g

procurement, and investing in local production capacity, wherever feasible. Frontières, op. cit.

64 The Global Partnership for Development at a Critical Juncture

by 37 per cent in the third quarter of 2009 and Malaysia’s by 14 per cent. In

contrast, expenditures in the Baltic countries decreased. Latvia has had the larg-

est decline (23 per cent in the third quarter of 2009).

The impact of the crisis is more visible in the funding of specific pro-

grammes and services, especially those related to HIV/AIDS (see box 2). At the

global level, there has been a fall in donor funding. Reduced economic activity

has meant lower government support for these programmes. This reduced sup-

port comes at a time when households find it increasingly difficult to seek or con-

tinue treatment as their income positions have weakened and new and improved

treatment has become more expensive.

Global initiatives to improve access

to essential medicines

In order to redress the incongruity of developing new and better treatments for

diseases that are less affordable and to make progress in increasing access to

affordable essential medicines, innovative global initiatives are being explored

in the areas of financing, incentives to local production of ARVs and the use of

exceptions to intellectual property rights.

Innovative financing mechanisms

A new innovative financing mechanism to expand access to affordable artemisinin-

based combination therapies (ACTs) will be launched in 2010. The Afforda-

ble Medicines Facility—malaria (AMFm) aims to promote the use of effective

antimalarials and drive out ineffective medicines from the market by reducing

consumer prices to an affordable level through price negotiations and a buyer

co-payment, and ensuring the safe and effective scale-up of ACT use by introduc-

ing in-country supporting interventions. Managed by the Global Fund to Fight

AIDS, Tuberculosis and Malaria (GFATM), the roll-out of AMFm will begin in

pilot countries in 2010.

Local production of antiretroviral medicines

In seeking to decrease the cost of essential medicines, there have been efforts to

Producing medicines locally

is reaping mixed results promote local production, but the experience has been mixed. On the one hand,

the data for 2006 indicates that India’s ARV supplies accounted for 70 per cent

of the value of transactions in terms of patient-per-year equivalents. Indian

10

ARV generic pharmaceutical manufacturers play an essential role in meeting

HIV treatment needs in low- and middle-income countries. On the other hand,

countries like Ghana, Kenya, South Africa, Uganda and Zimbabwe also pro-

duce ARVs locally, although most manufacturers of ARVs in sub-Saharan Africa

import the active pharmaceutical ingredients (APIs) and complete the drug for-

mulations in their respective countries. One exception is Aspen Pharmacare of

South Africa, which manufactures APIs, the key raw materials required in the

Data from WHO Global Price Reporting Mechanism (GPRM), which tracks ARV

10 procurement by the Global Fund to Fight AIDS, Tuberculosis and Malaria and several

other agencies. 65

Access to affordable essential medicines

manufacture of finished pharmaceutical dosage forms. The manufacture of APIs

has been enabled through Aspen’s joint venture companies in Cape Town, South

Africa, and Hyderabad, India, which are co-owned by Matrix Laboratories of

India. There are other examples of significant cost savings as a result of local

production of ARVs in Africa.

However, local pharmaceutical manufacturers in Africa face a number of

challenges. Danadams, a Ghanaian manufacturer of generic medicines, identifies

three key ones. First, the potential market available to African local manufac-

turers can be severely reduced if they do not obtain WHO pre-qualification, a

pre-requisite for participating in treatment programmes financed by GFATM,

or the marketing approval from the United States Food and Drug Administra-

tion (FDA) required to supply treatment programmes sponsored by the United

States President’s Emergency Plan for AIDS Relief (PEPFAR). Second, bioequiva-

lence tests for each product, which are required for the acquisition of WHO pre-

qualification, are expensive. Third, APIs have a high cost when purchased in

small quantities.

To strengthen Africa’s ability to manufacture and supply essential drugs

locally, African leaders adopted the Pharmaceutical Manufacturing Plan for

Africa (PMPA) in 2007, within the framework of the New Partnership for Afri-

ca’s Development (NEPAD). This Plan aims to reduce Africa’s dependence on

overseas suppliers as well as the financial burden of diagnosis, care and preven-

tion. The Plan and similar initiatives could provide an important opportunity

for defining government responses on the production of essential medicines in

Africa, including the establishment of regulatory and financial environments as

well as quality control procedures that are conducive to the long-term engage-

ment of investors.

Intellectual property and innovation policy

Intellectual property laws, policies and measures can play a critical role in either The use of Trade-Related

Aspects of Intellectual

facilitating or impeding access to generic ARVs and related essential medicines. Property Rights could

For countries without significant pharmaceutical manufacturing industries, facilitate improved

enabling legislation can facilitate the importation of more affordable essential affordable access to

medicines. Even though the WTO Agreement on Trade-Related Aspects of medicines

Intellectual Property Rights (TRIPS) ushered in a new era of required compli-

ance, WTO member States retained important flexibilities and safeguards. For

instance, countries have the space to interpret the three criteria of patentability

(novelty, inventive step and industrial applicability) in line with strategic domes-

tic objectives. Countries can also issue compulsory licences and government-use

orders which authorize the use of patent-protected inventions by the Govern-

ment or assigned third parties without the consent of the patent holder, provided

adequate compensation is provided. These flexibilities, if utilized effectively,

enable developing low- and middle-income countries with the capacity to do so

to achieve a balance between intellectual property protection and specific devel- More research and

opmental priorities, including increasing access to medicines. development of diseases

affecting developing

One of the enduring challenges faced by developing countries in increas- countries is needed

ing access to essential medicines by their citizens is that of stimulating research

and development activities for diseases that primarily affect low-income devel-

oping countries. Two initiatives provide a valuable opportunity in this regard.

66 The Global Partnership for Development at a Critical Juncture

First, the Global Strategy and Plan of Action on Public Health, Innovation

and Intellectual Property (GSPOA) adopted by the World Health Assembly

of 2008 presents an opportunity for countries to participate and engage in the

international discussion on how to increase innovation for the production of

medicines for diseases that primarily affect the developing world. Second, the

UNITAID voluntary patent pool, which was approved in December 2009,

provides an important opportunity to promote increased access to newer first-

and second-line ARVs and to encourage the development of other important

ARVs, such as fixed-dose combinations of newer products and special formula-

tions for children.

Other options available to developing countries are making increased use

Pooled procurement could

also reduce costs of market information to negotiate lower prices with pharmaceutical compa-

nies and increasing economies of scale and bargaining power through joint or

“pooled” procurement. There are examples of initiatives at both the regional

and international levels. For instance, in 2007, the GFATM established the

Voluntary Pooled Procurement (VPP) mechanism, which enables countries

with small purchasing volumes to pool their purchases, thereby increasing the

opportunity for achieving greater price reductions through competition. By

December 2009, more than 30 countries from various regions had confirmed

their participation in the VPP initiative. Pooled procurement also exists on

a regional basis. For example, the Organisation of Eastern Caribbean States

(OECS) reportedly saved approximately 44 per cent through joint procurement

in 2002, compared with the amount paid by countries procuring medicines

individually.

Strengthening the global partnership to increase

access to affordable essential medicines

Ensuring access to affordable essential medicines in developing countries

remains both an urgent and a very challenging endeavour. As target 8.E implies,

the public and private sectors must work together to improve the provision of

medicines, and this must unfold on a sustainable basis. As described above, the

global economic crisis has hampered progress because of rising costs and reduced

budgets for treatment programmes.

Actions recommended at the national and international levels to improve the

accessibility and affordability of essential medicines include the following:

y

y Governments of developing countries should be encouraged to increase the

availability of medicines in the public sector and to strengthen national health

systems, supported by official development assistance where needed

y

y All Governments should provide increased protection to low-income families

for acquiring essential medicines, such as health insurance that covers medi-

cines for both inpatients and outpatients

y

y Measures to improve the availability of essential medicine should be tailored

to country conditions by means of the following:

ƒ

ƒ Countries without significant pharmaceutical manufacturing capacity

should take advantage of flexibilities contained in the TRIPS Agreement so

as to facilitate imports of more affordably priced essential medicines 67

Access to affordable essential medicines

ƒ

ƒ Developing countries with the capacity to produce pharmaceuticals should

take advantage of public health–related TRIPS flexibilities to manufacture

generic versions of patented medicines and should consider foreign invest-

ment as a way to acquire new technologies for producing such medicines

ƒ

ƒ Developed countries should further facilitate the export of generic medi-

cines at the lowest costs to countries without manufacturing capacity by

incorporating the relevant TRIPS flexibilities into domestic legislation

ƒ

ƒ In order to facilitate the above TRIPS-related actions, the international

community should increase efforts to reduce costs incurred by developing

countries when making use of the flexibilities offered in the Agreement, or

compensate them for such costs

y

y All countries should support initiatives in developing countries to increase

access to essential medicines by stimulating research and development in the

field of neglected diseases through implementation of the GSPOA

y

y Developing countries should strengthen information-sharing mechanisms

regarding prices of medicines in order to strengthen their capacity to negotiate

lower prices with pharmaceutical companies. They could further strengthen

their bargaining power by setting up joint or “pooled” procurement or other

innovative financing mechanisms, such as the UNITAID voluntary patent pool 69

Access to new technologies

Access to new technologies has helped developing countries leapfrog to higher

levels of technology, allowing them to save resources and even facilitate activities

which would otherwise not be possible without the supporting infrastructure.

Although target 8.F focuses on information and communication technologies

(ICT), it also encompasses access to all new technologies. As pointed out in previ-

ous reports of the MDG Gap Task Force and reaffirmed in various international

conferences, it is also imperative that the international community come together

to better provide other key technologies to developing countries, such as those

for coping with the adverse effects of climate change and reducing greenhouse

gas emissions. The United Nations Framework Convention on Climate Change

(UNFCCC) enshrines commitments by developed countries to “take all practi-

cable steps to promote, facilitate and finance, as appropriate, the transfer of, or

access to, environmentally sound technologies and know-how to other Parties,

particularly developing country Parties”.

1

In the area of ICT, tremendous progress has been made in increasing usage

of mobile cellular telephony and the Internet. This growth in the use and applica-

tion of ICT has significantly boosted its potential as a catalyst for development

across sectors. Increased use of “e-Government” has helped improve the manage-

ment of education, health and environmental programmes, and this can have an

impact on the achievement of the Millennium Development Goals (MDGs).

However, the digital divide, in terms of access and affordability, still persists.

It is difficult to determine the precise delivery gap against international Concrete targets and

indicators are needed to

commitments for improving access to new technologies as no quantitative target monitor access to new

was established as part of MDG 8. The World Summit on the Information Soci- technologies

ety (WSIS) enunciated a total of ten ICT-related targets to be achieved by 2015.

These include targets “to connect villages with ICTs and establish community

access points” and “to ensure that more than half the world’s inhabitants have

access to ICTs within their reach”. The year 2010 marks the midpoint between

2

the 2005 Tunis phase of the WSIS and 2015, the deadline for achieving the ten

targets that Governments agreed upon at the WSIS. 3

Impact of the global economic crisis on ICT

The global economic crisis has not spared the ICT industry. The demand for

IT-related equipment has weakened, leading to lower investments. There has

United Nations Framework Convention on Climate Change, Article 4, para. 5, adopted

1 on 9 May 1992, available from http://unfccc.int/resource/docs/convkp/conveng.pdf.

See http://www.itu.int/wsis/docs/geneva/official/poa.html for a complete list.

2 While the WSIS Plan of Action does not attach precise quantitative indicators to the

3 targets either, the World Telecommunication/ICT Development Report 2010: Monitor-

ing the WSIS Targets—A Mid-term Review (Geneva, International Telecommunication

Union, 2010) will provide a mid-term review of each WSIS target, based on a set of

proposed quantitative indicators.

70 The Global Partnership for Development at a Critical Juncture

also been some evidence of reduced investments in planned network upgrades,

and the introduction of next generation networks (NGNs) into the market has

been delayed or abandoned as a result of financial constraints. At the same time,

the industry has benefited from a series of stimulus packages introduced in sev-

eral major economies—particularly member countries of the Organization for

Economic Cooperation and Development (OECD)—in response to the crisis,

which have included activities in the telecommunication sector. Government-

led investments in broadband infrastructure are seen as a means to offset the

negative effects of the crisis and enhance further growth prospects, based on the

recognition that ICTs are key enablers for overall economic and socio-economic

development through stimulating innovation and creating new jobs. 4

Usage of ICT services

Despite signs of weakness in investment, the recent economic downturn does

Access to ICT services has

increased despite the crisis not, thus far, seem to have slowed the increase in the use of ICT services such as

mobile phones and the Internet. This trend has been supported by continuously

falling prices of devices such as computers and handsets. The steady growth of

the number of mobile cellular subscriptions is striking, reaching an estimated

4.6 billion by the end of 2009 and a penetration level of 68 per 100 inhabitants

globally. In contrast, fixed telephone lines continued to lose their share in the

market with a penetration of less than 18 per 100 inhabitants globally.

5 6

Growth in mobile telephony continues to be strongest in the developing

Mobile cellular penetration

in developing countries has world, where there are now more than twice as many mobile subscriptions as in

grown rapidly the developed world (3.2 billion and 1.4 billion, respectively). China and India

account for most of the users in the developing countries, with over 1.2 billion

subscriptions (about 750 million and 525 million, respectively). Between 2008

and 2009, mobile cellular penetration in developing countries surpassed the 50 per

cent mark, to reach an estimated 57 per 100 inhabitants by the end of 2009 (see

figure 18), while in developed countries penetration largely exceeded 100 per cent.

Internet use has also continued to grow, albeit at a slower pace than mobile

Despite significant growth,

developing countries cellular telephony. Internet penetration rates in developed countries have grown

lag behind developed on average at about 6 per cent annually since 2007. In developing countries, aver-

countries in Internet usage age annual growth during the same time period has been strong, at over 20 per

cent, though much lower than the average annual growth of 38 per cent experi-

enced by these countries between 1998 and 2009. In 2009, an estimated 26 per

cent of the world population, that is to say, over 1.7 billion people, was using the

Internet. However, in developed countries, the proportion is much higher than in

developing countries (64 per cent and 18 per cent of the population, respectively)

(see figure 18). In other words, in 2009, over 80 per cent of the population in

developing countries was still excluded from the online world and its benefits.

See ITU, “Confronting the crisis: ICT stimulus plans for economic growth”, available

4 from http://www.itu.int/osg/csd/emerging_trends/crisis/confronting_the_crisis_2.pdf

and OECD, “Policy responses to the economic crisis: Investing in innovation for long-

term growth”, available from http://www.oecd.org/dataoecd/59/45/42983414.pdf.

The decline in the number of fixed telephone lines is partly because of the increase of

5 Voice Over Internet Protocol (VoIP), which is often offered as a bundled service and

part of Internet service.

Data from ITU, World Telecommunication/ICT Indicators database.

6 71

Access to new technologies

Figure 18

Penetration of mobile cellular subscriptions and Internet users in developed and

developing countries, 2000-2009 (percentage)

120 Mobile cellular

subscriptions in

developed countries

100 Mobile cellular

subscriptions in

developing countries

Internet users in

80 developed countries

Internet users in

developing countries

60

40

20 Source: International

Telecommunication Union,

World Telecommunication/ICT

Indicators database.

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Many of those having access are to be found in China, which accounted for one

third of the Internet users in the developing world. The least developed countries

(LDCs) still lag far behind in usage, despite an increase to 2.1 users per 100 in

2008, up from 1.6 in 2007. Oceania, sub-Saharan Africa and South Asia con-

tinue to be the regions with the fewest mobile cellular subscriptions per capita

(figure 19) and the lowest number of fixed telephone lines (figure 20).

Broadband is playing an important role in transforming societies through

the introduction of applications that are changing the way businesses and people

interact with each other. Fixed broadband access is still largely confined to Inter-

7

net users in developed countries, and a large and persistent broadband divide can

be observed, with 27 per cent penetration in developed countries compared to

only 3.5 per cent in developing countries in 2009. Fixed broadband subscriptions

in the developing world are heavily concentrated in a few countries, with China

accounting for half of the 200 million fixed broadband subscriptions, having

overtaken the United States of America as the largest fixed broadband market in

the world in 2008. 8

Although fixed broadband usage has been increasing, major disparities per- Large regional disparities

in the use of ICT

sist between regions (figure 21). In many of the poorest regions of the world, the services persist

number of fixed broadband subscriptions is still negligible. In Oceania, South

Asia and sub-Saharan Africa, penetration rates are less than 1 per cent. Although

by 2009 most of the LDCs had commercially deployed broadband, the service

remained inaccessible since it was prohibitively expensive.

Since access to basic communications in the developing world has been achieved largely

7 through mobile communications, broadband wireless access is expected to play a key

role in developing countries. Currently, data on mobile broadband use are not widely

available, however (nor are they internationally comparable).

ITU, World Telecommunication/ICT Indicators database.

8


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Materiale didattico per il corso di Diritto internazionale dello sviluppo della Prof.ssa Cristiana Carletti utile alla stesura degli elaborati finali. Trattasi del rapporto della Millennium Development Goals Task Force del 2010 in cui sono esposti le azioni di cooperazione allo sviluppo attuate dal piano, i risultati raggiunti a paragone con gli obiettivi prefissi, le raccomandazioni sulle azioni future.


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