With the longest coastline in mainland Africa, bordering the Arabian Sea, the Gulf of Eden and the Indian Ocean, the Federal Republic of Somalia (“Somalia”) was historically a thriving centre for international trade and commerce. Yet, instability, poverty and violence have marked Somalia’s recent past. Following the collapse of socialist military junta regime in the early 1990s, Somalia plunged into two decades of civil war, which devastated its economy and eviscerated many of its institutions.

Today, post-conflict Somalia is in transition and rebuilding. After the civil war, the Federal Government of Somalia (“FGS”) came to power in 2012, and Somalia began taking steps towards re-establishing peace and security, as well as re-engaging the international community. Although Somalia has seen economic growth since then, the country remains extremely poor, with GDP per capita below US$300 and approximately 70% of its population still living below the poverty line. Although historically Somalia had a relatively export-oriented economy, the modern Somali economy is highly dependent on imports and has a large trade deficit financed by remittances and international aid. Somalia also has a significant youth bulge, with approximately 80% of the population under the age of 35, and suffers from very high unemployment (estimated at close to 60%).[1]

Somalia applied to join the World Trade Organization (“WTO”) on 12 December 2015, and the Working Party on the Accession of Somalia was established in December 2016. Accession to the WTO holds great promise for Somalia. It provides the opportunity for Somalia to tackle and transcend poverty through trade, to maximize productive use of its vast, untapped natural resources, and to build strong and equitable institutions.  However, as explained below, accession is not a panacea for all of Somalia’s economic difficulties – the benefits of accession are not automatic and can only be realised if accession is used as an instrument of institutional and structural reform.

Background to WTO Accession

The WTO is an international organization that deals with the rules of multilateral trade. Set up in 1995 as the successor to the General Agreement on Tariffs and Trade (“GATT”), the WTO coordinates and oversees trade negotiations and dispute settlement amongst WTO members. Negotiated agreements under the GATT and WTO framework (the “WTO Agreements”) bind WTO members and comprise the rules-based multilateral trading system. The WTO currently has 164 members, which together account for more than 98 percent of global trade flows.[2]

Any state or customs territory with full autonomy in the conduct of its external commercial relations can accede to and become a member of the WTO in accordance with Article XII of the Marrakesh Agreement establishing the WTO (the “Marrakesh Agreement”). To join the WTO, an acceding government will have to:

1. apply for accession (through a formal communication to the Director-General of the TWO) and establish an accession Working Party;
2. prepare a Memorandum on the Foreign Trade Regime (“MFTR”), which is a summary of the acceding government’s foreign trade regime with accompanying legislation and statistical data;
3. consult on selection of a Working Party Chairperson;
4. prepare replies to questions submitted by Working Party members on the MFTR;
5. negotiate commitments at Working Party Meetings and bilateral market access negotiation meetings;
6. draft, circulate and complete an Accession Package comprising: (i) the Report of the Working Party; (ii) a draft Decision and a draft Accession Protocol which sets out the terms by which the acceding government joints the WTO; and (iii) Goods and Services Schedules; and
7. draft, circulate and complete a Legislative Action Plan (“LAP”), which contains a full inventory of WTO-related legislation and roadmap for WTO-related domestic legislative work to take place after accession.

The accession Working Party completes its mandate by adopting the draft Accession Package and forwarding it to the Ministerial Conference or General Council. The WTO membership will then, by a two-thirds majority: (i) approve the draft Accession Protocol; (ii) adopt the draft Decision; and (iii) adopt the Report of the Working Party, including the Goods and Services Schedules. To complete the accession, the state or customs territory must adopt the Accession Protocol through its own treaty ratification process. 30 days thereafter, the acceding state or customs territory becomes party to the WTO agreements and the commitments under the Accession Protocol become binding.

The WTO accession process involves a series of complex negotiations and can take several years, even decades. Indeed, the accession process takes approximately 10 years on average (and can take up to 20 years) to complete.[3]   However, the WTO has formalized guidelines to streamline and accelerate the accession process for Least Developed Countries (“LDCs”), which apply in Somalia’s case.[4] Under these guidelines, WTO members are to exercise restraint in seeking market access concessions and agree to transitional implementation of the WTO Agreements.

Opportunities and Benefits for Somalia

What does Somalia stand to gain from joining the WTO? Research and data show that WTO accession will likely result in a variety of direct and immediate benefits for Somalia. It also provides an opportunity for long-term capacity building and institutional reform.

First, WTO accession allows Somalia to participate in the multilateral trading system and gain market access on favourable terms to 164 economies that account for 98 percent of global trade. This means that products from Somalia will have the opportunity to reach new markets and face reduced barriers to trade in those markets. Somalia will also benefit from most-favoured nation treatment and national treatment by other WTO members under the WTO Agreements.

Second, WTO accession will boost trade for Somalia. There is evidence that WTO accession has a powerful and positive impact on trade, in particular for developing countries that acceded after the Uruguay Round in 1995.[5] Research also shows that WTO accession results in a statistically significant improvement to trade intensity, not just quantitatively but also qualitatively, as trade in services increases for acceding countries.[6]

Third, the WTO accession process provides an opportunity for Somalia to engage with the international community and strengthen international cooperation. Through multilateral and bilateral negotiations during accession, Somalia can build and cement trading relationships with key partners in the multilateral system. Governments, particularly in LDCs, often face a “credibility gap” in trying to convince foreign investors and the international business community about their commitments to investment protection and creating a stable business environment. Adhering to key WTO commitments during and after accession can enhance Somalia’s credibility, and will be seen as “indicating [its] willingness … to implement far-reaching changes in domestic economic policies and institutions.”[7]

Fourth, WTO accession provides an opportunity for Somalia to improve its governance and strengthen the rule of law. The WTO accession process requires Somalia to consider whether its domestic legislation and practices conform with WTO requirements, and the WTO Agreements provide a “blueprint” for comprehensive legislative reform. Throughout the accession process, Somalia can also make use of the enhanced capacity-building and technical assistance available for LDCs. These processes can have a significant positive impact on governance. Research shows that WTO accession improves institutional quality and efficiency, and has a positive effect in reducing rent-seeking behaviour and corruption.[8]

Fifth, WTO accession can contribute to economic growth. Accession can reduce the cost of living and increase consumer choice through reduced trade barriers. It can also be used as a catalyst for structural transformation and economic modernization. There is some evidence that WTO accession can raise per capita income and increase investment in acceding countries, specifically for countries that have undertaken substantial reforms as part of accession.[9] Greater levels of trade and investment, accompanied by sound domestic economic policy, are crucial to boosting economic growth and reducing unemployment in Somalia.

Accession Not a Panacea

Accession to the WTO, however, is not a panacea to all of Somalia’s economic difficulties. The benefits described above do not accrue automatically and in all cases. They are highly context-dependent.

The benefits of WTO accession on trade and economic growth are contingent upon acceding states undertaking substantial structural and institutional reforms – both as part of the accession process as well as post-accession – to liberalize trade and build strong economic institutions.[10] Bulgaria is one example of an acceding state that did not engage in adequate structural or institutional reform. As a result, it was unprepared for joining the multilateral trading system and experienced gradual de-industrialization and declines in agricultural production after accession.[11]

Structural and institutional reforms are often costly – they require investment in the building of various institutions involved in trade and investment facilitation, and following through on reforms that face significant domestic opposition. To do this, Somalia will require significant political will in support of accession as well as robust cross-ministerial and institutional support. These should be achievable in principle, given that WTO accession aligns with Somalia’s economic development and poverty development strategy;[12] but arduous nonetheless.

Because of these trade-offs, it is critical that every state embarking on WTO accession communicate clearly to its public both the potential gains and pains that are involved in joining the WTO, and to ensure that domestic constituencies and public opinion are on message. This public relations element of the accession process should not be overlooked.   Non-governmental organizations and civil society groups played a large role in advocating Nepal’s accession to the WTO, and contributed to a domestic political environment conducive to WTO accession.[13] In Somalia, civil society groups such as the Chamber of Commerce in Mogadishu can play a similar role in raising awareness about the WTO and promoting understanding of the multilateral system, including the trade-offs involved, and emphasising its benefits for Somalia.

The Road So Far and Next Steps

Since the establishment of Somalia’s Working Party, Somalia has, through the efforts of its Chief Negotiator and the Accessions Division of the WTO Secretariat, made significant progress. In particular, Somalia has:

1. established an international working group and negotiating team comprising leading international practitioners, trade experts and academics;
2. prepared an accession roadmap and taken steps to build a local coordinating team between different Somali ministries and governmental agencies;
3. begun drafting the MFTR for circulation in preparation of the first Working Party meeting;
4. taken steps to identify and consult regarding the chairperson of the Working Party;
5. formally re-established ties with the World Intellectual Property Organization (“WIPO”) in order to obtain its assistance in connection with IP-related matters;
6. held bilateral meetings with representatives of multiple WTO members and a number of different national and international organizations regarding potential technical assistance and capacity-building support; and
7. begun identifying existing gaps in Somali legislation with a view to drafting the LAP as part of Somalia’s Accession Package.

Going forward, Somalia will continue work on the MFTR and its preparations for the first accession Working Party meeting. At the same time, it will also focus on building organizational structures to undertake the institutional and structural reforms that are crucial for WTO accession to succeed. This is a mammoth undertaking and will require, as noted above, strong political commitment to reform, and a supportive domestic environment. However, if successfully done, such reforms, together with the integration of Somalia’s economy into the multilateral trading system, will create the conditions for a secure, just, and prosperous Somalia.

Jonathan Lim and Burak Eryigit are lawyers at Wilmer Cutler Pickering Hale and Dorr LLP.  They are members of Somalia’s negotiating team for the accession to the WTO. 

References

[1] Federal Government of Somalia, National Development Plan 2017-2019, available at http://extwprlegs1.fao.org/docs/pdf/som169866.pdf (last visited 21 May 2018).

[2] WTO Annual Report 2017, at p. 28.

[3] World Trade Organization, WTO Accessions: Expanding world trade and strengthening WTO rules, available at: https://www.wto.org/english/thewto_e/20y_e/acc_brochure2015_e.pdf (last visited 21 May 2018).

[4] See WTO document, Accession of Least-Developed Countries: Decision of 10 December 2002, WTO doc. WT/L/508, 20 January 2003; WTO document, Accession of Least-Developed Countries: Decision of 25 July 2012, WTO doc WT/L/508/Add.1, 30 July 2012.

[5] A. Subramaniam and S. J. Wei, “The WTO Promotes Trade, Strongly but Unevenly,” 72(1) J. of Intl. Econ. 141 (2007).

[6] H. Escaith, C. Osakwe, V. Chemutai and Y. Yan, “Transforming Accessions Data into Knowledge,” in A. Kireyev and C. Osakwe, eds., Trade Multilateralism in the Twenty-First Century: Building the Upper Floors of the Trading System Through WTO Accessions, 2017, 175, at pp. 190, 197.

[7] Sudip Ranjan Basu, “Does WTO accession affect domestic economic policies and institutions?, Graduate Institute of International Studies”, HEI Working Paper No: 03/2008, 14 February 2008, at p. 3.

[8] Z. Drabek and M. Bacchetta, “Tracing the Effects of WTO Accession on Policy-Making in Sovereign States: Preliminary Lessons from the Recent Experience of Transition Countries,” 27(7) The World Economy 1083 (2004).

[9] M.K. Tang and S.J. Wei, “The Value of Making Commitments Externally: Evidence from WTO Accessions,” 78(2) J. of Intl. Econ. 216. Anecdotally, some countries have experienced significant increases in foreign direct investment (“FDI”) after accession. For example, FDI in Cambodia increased by 565 percent between 2007 and 2014, and FDI in Chinese Taipei increased by 128 percent between 2002 and 2014. See World Trade Organization, WTO Accessions: Expanding world trade and strengthening WTO rules, available at: https://www.wto.org/english/thewto_e/20y_e/acc_brochure2015_e.pdf (last visited 21 May 2018).

[10] See C. Osakwe, “Developing Countries and GATT/WTO Rules: Dynamic Transformations in Trade Policy Behavior and Performance,” 20(2) Minn. J. of Int. L. 365; M.K. Tang and S.J. Wei, “The Value of Making Commitments Externally: Evidence from WTO Accessions,” 78(2) J. of Intl. Econ. 216.

[11] I. Kolesnikova, “WTO Accession and Economic Development: Experience of Newly Acceded Countries and Implications for Belarus,” 2013, at pp. 16-17.

[12] Federal Government of Somalia, National Development Plan 2017-2019, available at http://extwprlegs1.fao.org/docs/pdf/som169866.pdf (last visited 21 May 2018).

[13] P.R. Rajkarnikar, The Role of an NGO in Support of Accession, available at: https://www.wto.org/english/res_e/booksp_e/casestudies_e/case30_e.htm (last visited 21 May 2018).