Market-Oriented Service Offer Bridges WTO Accession

The statement that came out of the office of the ruling EPRDF last week was different from the usual ones. An outcome of the permanent monthly meeting of the executive committee of the ruling party, held on Monday and Tuesday, at the Prime Minister’s Office, located off Lorenzo Liezaz Street, the statement dwells much on what the party is doing to solve governance problems. Highlighting the significance of the problem, it goes on to state that “a national good governance movement” is being initiated, in which the general public is “placed at the center.”

Two of the other subjects dealt in the statement are natural resource management and containment of the protests in Oromia. The inimitability of the statement comes not from the elements it embraces, but the ones that it ignores. It looks like the ruling elite is more overwhelmed by fractures within its administration than the structural snags of the system it is entrusted to govern. In a way, this seems to be coming at the expense of the economy.

If there is one vital thing missing in the latest statement, it is the usual pride the ruling elite takes in its economic achievement. Showcasing the deliberate nature of the action is the absence of any indicative economic plans in the message.

For an economy struggling with deepening ForEx shortage, incessant commodity scarcity, expanding informal economy and increasing investor uncertainty, such a high-level sidelining of the economy could play a negative role. This, of course, is not to mention the undesirable signal the markets could take from the gaps of the statement on grand policy agendas, including the second Growth & Transformation Plan (GTP II) and accession to membership of the World Trade Organization (WTO).

Although it has been a month since the EPRDF-controlled federal parliament endorsed GTP II, an organised implementation process is yet to start. Debates on big policy agendas included in the plan, such as membership of the WTO, are yet to surface. It looks like the policy sphere has lost its geographic positioning system (GPS).

A high-level deliberation that sidelined pertinent macroeconomic policy agendas does not, however, mean the issues will just go away. Instead, they will evolve in their own way, go unnoticed, and increase the cost of consensus.

On accession to WTO, for instance, the high echelons of power seems to have reached a consensus that the process ought to end by the last days of GTP II. Yet, a comprehensive service offer – a policy document that details the tax, tariff, investment, incentive and subsidy schemes in the service sector – is yet to be tabled to the WTO. No conclusive policy stance has even evolved on telecommunications and finance, sectors considered strategic by the EPRDF.

It has been 13 years since the nation officially applied to be a member of WTO. The average time the nation took between the various steps of the accession process, which include application, working party establishment, signing of memorandum, documentation and market access negotiations, remains three years. A comprehensive policy offer on goods was submitted to the WTO on February 17, 2012 and no concrete step has been taken ever since.

If one is to go by previous plans, the service offer was to be made in September, 2015. Revised internal plans of the government show that the offer could be made either in the last quarter of 2016 or the first quarter of 2017. This matches with the plan to finalize the accession by 2020.

Of course, there is huge doubt surrounding the plan. And much of this doubt relates to the passivity felt within the policy sphere.

Lack of political commitment has been the distinguishing character of the EPRDFites.  It has been the one issue that executives of the WTO mention whenever they meet government officials. By and large, this passivity has diffused into the business circle. There seems to be no interest in the accession process in the business sphere, be it in formal advocacy groups, such as chambers and sectoral associations, and informal gatherings. Things are going as if the status quo will remain the same even after Ethiopia becomes a member. But the fact remains far from the prevalent perception.

Accession will bring fierce competition to the business sphere. The rules of the game, especially on quality, branding, patent rights and dumping, will be far different from the existing ones. So would be the modus operandi on outsourcing, in-sourcing, exporting and importing. Changes will come either in the form of obligatory rules, consensual procedures or preferred approaches.

One way or the other, accession to WTO requires effective national preparation. This is why the silence felt within the various spheres of the national economy looks strange. This should be the time for heated debates.

Latest indications from the ruling elite, including a recent pronouncement by officials of the trade ministry to the Trade Affairs Standing Committee of the Parliament, show that the government is finalizing its service offer. Yet, the exact nature of the final offer is yet to be defined.

A closer analysis of government’s intentions and inclinations shows that they would act in favour of accession with protection. They will do everything to utilize the grace period provided to them under the Least Developed Country (LDC) accession window of WTO. Surely, this will relate more to the strategic sectors.

Nonetheless, the national economy will benefit much from a market-oriented service offer. In contrast to the government’s protective approach, a market-oriented approach will expose all sectors of the nation to the full forces of the market. Not only will this unleash the growth potential of sectors, such as finance and telecommunications, but it will also create a synergetic positive impact on the overall economy of the nation.

Through a market-oriented approach, the offers to be made by the country will be tied to the forces of demand and supply. At the centre of the offers, therefore, will be the intention of letting competition be the guiding rule of the game. Not only would this abolish monopolies, but it can avoid all sorts of uncompetitive business practices.

Certainly, a market-oriented offer will not be risk-free. It will bring its own risk to the protected industries, not least finance and the retail trade. With more competitors coming in, local players could be outcompeted.  And this, in a broader sense of things, would mean the process of creating a national champion in these sectors could be challenged.

Another risk that comes with a market-oriented service offer is profit-oriented service provision. For developmentalists, who often stand for universalization of access, this translates into favouring high-income, educated, urban, and politically influential citizens over low-income, uneducated, rural and marginalized citizens.

Even if the risks cannot be denied, there is enough that can be done by the government in the form of effective policy action. On profit-oriented service provision, for instance, the government can use its policy instruments to incentivize investment diversification.

Hence, the best way the government can help the local economy is to strengthen its regulatory capacity. Without this, even a protective offer could not save the economy from the impacts of extensive market failures and crises.

It would not end there, though. The key to benefiting from WTO accession comes with building a reliable national competitive capacity. And this cannot be built under protection. It can only happen in competitive business, economic and finance spheres.

That is why the service offer to be crafted by the government should be market-oriented. After all, no policy guidance, including a monthly meeting of high-level officials, could be effective without recognising the role of the economy, markets and competition.

Published on Feb 01,2016 [ Vol 16 ,No 822]



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