Information

Examples

Case studies and examples of good practice

Bangladesh’s pharmaceutical industry is unique among least developed countries (LDCs). Driven by active government policies, output has grown a thousand times since 1982, to US$2 billion, or around 1% of gross domestic product, making it the biggest white collar employer in the country. The industry supplies almost the entire domestic market and more than 100 other countries including the United States.

It’s of some concern, then, that if Bangladesh potentially leaves the LDC category in 2024 it’ll no longer have access to a special World Trade Organisation (WTO) waiver which exempts the industry from the Agreement on Trade-Related Aspects of International Property Rights (TRIPS). The exemption has allowed government to pursue a dedicated industrial policy that’s spurred growth until now.

Most of the hundred or more pharma companies operating in Bangladesh make so-called generics, or non-branded medicines, the patents of which have often expired. Around a fifth of drugs produced in the country are patented in other countries, something which is made possible by the waiver which until 2033 allows LDCs to produce patented drugs without first asking patent holders.

The most obvious benefit of the waiver is that companies can make whatever drug they want, drastically cutting costs and improving availability. Bangladesh’s 1911 Patent Law would contravene the TRIPS agreement in a number of ways, among other things because it only provides patent protection for 16 years, not the required 20. No patent protection exists for plant and animal varieties; compulsory licences can be introduced by entities other than government; and foreign patents can be cancelled after four years if the product is not also manufactured domestically.

The Drugs Act allows government to regulate how imported drugs are labelled, requiring complete formulaic information to be visible. The Drugs Control Ordinance of 1982 lets the authorities fix prices and restrict the imports of any medicine if it or a substitute is produced in the country.

Under the waiver Bangladesh as an LDC can export generic versions of patented drugs to any country where those drugs aren’t covered by patents or where compulsory licences are issued to treat diseases like cancer or HIV/AIDS. Vietnam, Myanmar and Kenya are currently key markets.

Perhaps most importantly, weak intellectual property protection has also allowed Bangladeshi firms to build their technological base by imitating or reverse engineering foreign technologies. Copying and reverse engineering is critical to economic catch-up in a range of industries, not just pharmaceuticals. Rather than start from scratch, developing-country firms can take advantage of what others have learned.

The end of access to the waiver after graduation means several things.1

First, Bangladesh would have to update its patent law, increasing patent terms to 20 years, extending patents to pharmaceutical products and processes, and allowing patent protections on animal and plant varieties. Patents could no longer be cancelled simply because they are foreign-registered, and compulsory licenses could only be issued by the government.

Bangladesh would have to let foreign companies file for an injunction if a patent was infringed so that the authorities could seize those goods. The government could no longer insist that the ingredients of imported drugs were displayed on packaging for fear of revealing trade secrets and interfering with manufacturers’ marketing strategies.

After graduation Bangladesh would also probably have to abandon the import restriction strategy pursued under the 1982 drugs control ordinance, again because it would conflict with WTO rules.

Irrespective of the loss of the pharmaceutical waiver, it’s unlikely that the general TRIPS exemption for LDCs will be renewed after its expiry in 2021. Although this is before Bangladesh’s potential graduation date and would therefore have an impact irrespective of graduation, complying with TRIPS would be expensive. The government has already said that it will upgrade its intellectual property system in accordance with TRIPS, earmarking projects worth US$71.04 million.2 Among other things this includes an overhaul of the Patent Act. A 2014 draft law is still under review by the Ministry of Industry.

Some commentators argue that strong protection of intellectual property under TRIPS will stimulate innovation, attract foreign direct investment and foster technology transfer, promoting development.3 Bangladesh would compete on a level playing field, with private companies confident that their intellectual property wouldn’t be stolen. On this line of argument, intellectual property rights are said to incentivise innovation by preventing free-riding and increasing the rewards from investment.

The evidence in LDCs, however, doesn’t support this view. According to the Intergovernmental Panel on Climate Change (2014), the argument that strong intellectual property protection stimulates domestic technological innovation is “almost entirely limited to specific sectors in the developed world”.4 Strong intellectual property protection can raise prices — by up to 40 percentage points according to some estimates — restricting imitation and follow-on innovation6 as well as limiting access to important technological inputs into research and development.7

Bangladesh would also have to bring its laws into line with WTO agreements other than TRIPS, such as the WTO Agreement on Subsidies and Countervailing Measures. This may bring into question the services and facilities given to local drug manufacturers under the National Drug Policy of 2005. Full compliance with WTO rules would require that infant pharmaceutical corporations compete in the global market with little financial support from government.

Ultimately LDC graduation risks derailing the process of technological learning that has spurred growth until now. The industry body expects recent annual compound growth rate of 15% to continue into the medium term. Without mitigating measures, this growth may slow, with broad-based economic, employment and public health implications. As a potential middle-income country, Bangladesh’s main challenge is to keep moving up the technological ladder, adding value and moving away from low-cost production.

More importantly, limiting the activities of pharmaceuticals producers could raise prices for Bangladeshis who couldn’t otherwise afford vital drugs – as well as buyers around the world. Life-saving medicines would no longer be available for poor people in Bangladesh, LDCs and other developing countries.

What appears likely in the event of graduation, and without any new measures to mitigate the impact on graduating countries, is that the industry will undergo consolidation, with established international players buying up smaller local companies. The possible new foreign investment may bring new technologies and working practices, with a knock-on impact on production – although nothing is certain. Whether the industry is robust enough to withstand and adapt to this consolidation remains to be seen.

 

By Daniel Gay

Inter-regional adviser, Committee for Development Policy Secretariat


1. Fukuda-Parr and Treanor (2017) ‘Trade agreements and policy space for achieving universal health coverage (SDG target 3.8)’, draft Committee for Development Policy Working Paper

2. World Trade Organization: Trade Policy Review Body, Trade Policy Review Report by Bangladesh, WTO Doc. WT/TPR/G/270, 10 September 2012, para. 37.

3. See, e.g., Laurence R. Helfer (2004), Regime Shifting: The TRIPS Agreement and New Dynamics of International Intellectual Property Law-making, Yale Journal of International Law, vol.29, pp. 1-83, at p. 2.

4. IPCC (2014), Climate Change 2014: Mitigation of Climate Change, Working Group III Contribution to the IPCC 5th Assessment Report, Cambridge University Press, p. 1175.

5. Richard C. Levin et al. (1987), Appropriating the Returns from Industrial Research and Development, Brookings Papers on Economic Activity, pp. 783-820, p. 811

6. See, e.g., Walker Simon (2001), The TRIPS Agreement, Sustainable Development and the Public Interest, Discussion Paper, IUCN, Gland, at p. x; Commission on Intellectual Property Rights (2002), Integrating Intellectual Property Rights and Development Policy, Report of the Commission on Intellectual Property Rights, London, p. 1; and OECD (2004), Patents and Innovation: Trends and Policy Challenges, OECD, Paris, at p. 9.

7. Yee Kyoung Kim et al. (2012), Appropriate intellectual property protection and economic growth in countries at different levels of development, Research Policy, Volume 41, Issue 2, March 2012, pp. 358-375.

Women in a training centre for traditional handicrafts, a project assisted by the United Nations.

Bangladesh, the largest least developed country (LDC) in terms of population and economic size, looks likely to leave the LDC category by 2024, propelled by better health and education, lower vulnerability and an economic boom.

The country for the first time met the three criteria for graduation at the Committee for Development Policy (CDP) triennial review in March 2018.

The CDP measures the LDC category on the basis of per capita income, a human assets index and an economic vulnerability index. A country must exceed thresholds on two of the three criteria at two consecutive triennial reviews to be considered for graduation. Up to now, no country has managed to meet all three criteria.

Bangladesh’s success comes on the back of six straight years in which economic growth exceeded 6%, culminating in some of the fastest growth rates in the world in recent years. Per capita gross national income has outstripped the LDC average since 1996 and has recently risen above the threshold used by the CDP.

The economy has developed largely via textile and garment exports. Clothing forms a higher share of exports than in any other country. Remittances, natural gas, shipbuilding and seafood, as well as information communications and pharmaceuticals are all emerging sources of foreign exchange and economic growth.

Per capita gross national income, US$, Atlas conversion, 1976-2018 (three-year averages)

Source: Committee for Development Policy Secretariat

 

This economic boom has helped the poor. Since 1990 about 50 million people left extreme poverty, as defined by the World Bank, a reduction in the poverty rate from 40% to 14%. Bangladesh’s thriving non-government organisations have helped provide vital health and education services to the poor, translating into rapid improvements in the human assets index used by the CDP.

Increases across the five components of the human assets index – infant mortality, maternal mortality, undernourishment, adult schooling and adult literacy – meant that Bangladesh exceeded the threshold on this index for the first time in 2016.

Human assets index, Bangladesh and LDC average, 1999-2017

Committee for Development Policy Secretariat

Bangladesh is also unusual in that it has enjoyed a reduction in economic vulnerability. The economic vulnerability index has consistently decreased since 2003, the first year it fell below the CDP’s official threshold, partly due to greater export stability and diversification.

Economic vulnerability index, Bangladesh and LDC average, 1999-2017

Source: Committee for Development Policy Secretariat. Note: Bangladesh’s population index is zero as its population is larger than 100 million.

 

Bangladesh’s graduation will have implications for the economy, although many of the main stakeholders – including the government and private sector – believe that graduation would be a major step forward in the country’s history and therefore an event to be welcomed.

Official development assistance is a relatively small proportion of government expenditure and appears unlikely to decline solely on the basis of LDC graduation – despite donors’ official commitment to prioritise LDCs. The other special international support measures for LDCs, such as travel grants, reduced UN and peacekeeping budget commitments and scholarships, are considered relatively unimportant given the size of the economy.

Following graduation in 2024 the country would probably be given a three-year transition period before it lost duty-free, quota-free market access to the European Union under the Everything but Arms initiative for LDCs. After 2027, provided that it ratifies 27 conventions on human and labour rights, environment and governance, Bangladesh may be expected to gain access to the Generalised System of Preferences Plus (GSP+), giving it dedicated preferential tariff rates.

The impact of any tariff increases would, however, be divided between exporters and importers, meaning that European clothing companies may pay some or all of the difference. Bangladeshi exporters are confident that the country will remain competitive over the medium term against major comparators like Vietnam, reducing the importance of tariff preferences. Business leaders say that tariff advantages are not the key obstacle to export success, and that a number of other economic challenges are more important, including infrastructure, the exchange rate and the outlook for the global economy.

An increasing volume of global garment production is being offshored from China, providing additional opportunities for countries like Bangladesh. Meanwhile the economy is gradually diversifying, particularly into services, which do not face goods tariffs and which are therefore less affected by LDC graduation.

Several stakeholders suggest that the improvement to Bangladesh’s image on the world stage from graduation would give it a better credit rating, allowing it to borrow more cheaply on world markets. Moody’s rating agency currently ranks the country as Ba3, which is below investment grade and assigns Bangladesh’s bond the ‘high-yield’ or ‘junk’ status, although the outlook is stable. Infrastructure investment is a pressing priority given the country’s traffic congestion, high and growing population and the rapid pace of development.

Bangladesh’s LDC graduation is certainly not the end of the story. Although a move on to the next rung of development is a major milestone in the nation’s history, pressing economic challenges remain, such as how to raise wages for the working poor without losing international competitiveness. Bangladesh’s comparative advantage currently lies in cheapness; yet low wages by definition perpetuate income poverty. Although extreme poverty has fallen, many people remain in low-paying jobs. Population pressures, climate change and the automation of production are ever-present challenges. How the country navigates its journey into middle-income status will be one of the defining issues of the coming decade.

Bhutan first plugged in to the Internet and TV in 1999. So isolated was the tiny Himalayan nation that until then World Cup soccer fans had to drive to the Indian border to buy videotapes of the latest matches, which they would watch a day late.

Picture the scene seventeen years later: at Thimphu TechPark, a government-run technology hub, a dozen coders hunch over flatscreen monitors. Downstairs, teenagers bark at Europeans through headsets. Soccer is a click away.

The success of Thimphu TechPark explains why Bhutan is moving so quickly toward its goal of graduation from the least developed country category (LDC). For the second time the country was found eligible for graduation at 20th triennial review of UNDESA’s Committee for Development Policy (CDP) in 2018, paving the way for graduation in 2024.

The government is preparing for graduation by putting in place policies to diversify and develop productive capacity.

The TechPark is exactly the kind of initiative that the project aims to support with policy proposals. “Initially people expressed a lot of skepticism about the park,” says CEO Tshering Cigay Dorji, “but these things take time.” It was only after US online photo company Scan Café ramped up its initial 20-strong pilot project in May 2013 that 11 others followed from Bangladesh, Switzerland and elsewhere, specializing in telecoms, business process outsourcing and online data.

Scan Café showed that Bhutan was a good place to do business. Most of the ingredients were already in place – good education, competitive wages, cheap electricity and low rent – they just hadn’t yet been used in IT. Most Bhutanese are taught English from an early age, and the country scores particularly well on the human assets index that is part of the official LDC category.

Bhutan is following a path well-trodden by successful tech exporters: start small and cheap, discover markets through trial and error, and move into more sophisticated activities later on.

Government leadership is strong. The national vision, Gross National Happiness (GNH), aims to “maximize the happiness of all Bhutanese and to enable them to achieve their full and innate potential as human beings”.

According to the Bhutan Diagnostic Trade Integration Study (DTIS), IT fits well with the GNH environmental vision. E-commerce and e-government have a low environmental impact because they localize service access and delivery and are more efficient than old, carbon-heavy industries.

It’s too early to tell whether the TechPark will transform the economy. But in a tiny, remote LDC that only opened up to the outside world less than two decades ago, Thimphu TechPark is a remarkable success story, and the kind of policy initiative which the UN should continue to support.

At Leather Wings, a small shoe-making outfit based in central Kathmandu, four women sit in a small room cutting up bright red cowhide imported from India. Next door a dozen of their colleagues stitch the shapes together on hand-powered sewing machines. The owner Samrat Dahal says the boots, designed by a German expat, sell via the Internet in India, China and Italy.

The company, founded in 1985, sums up some of the issues facing the Nepalese economy: entrepreneurial leaders at the helm of a committed workforce making a competitive and quality product for which there is ample overseas demand. The problem isn’t finding buyers; it’s scaling up production enough to meet that demand. Exports by the handful of players in Nepal’s shoe industry totalled only US$20 million in 2014.

Nepal, in turn, characterizes the problems facing many other LDCs (Least Developed Countries). At the risk of over-simplification, they just don’t produce enough.

The challenges of building productive capacity in LDCs like Nepal is central to the sustainable development goals (SDGs). Building sustainable production will be essential in achieving the 2030 Agenda. SDGs 8, 9, 10 and 17 relate directly to productive capacity.

Improving productivity is part of what economists call ‘structural transformation’ whereby the economy moves from low value-adding farming to more productive forms of agriculture, as well as services and manufacturing.

While some LDCs grew fast in recent decades, only a few managed to transform their economies. “Better access to foreign markets helped, but it wasn’t enough,” says CDP member Professor Diane Elson of Essex University.

For Leather Wings the bigger obstacles are finance, technology and the cost of inputs bought from abroad (Nepal has no tanning operation). Dahal would like to borrow enough money to invest in electric sewing machines. Mechanization would be more efficient and cut costs. But even basic technology is hard to come by, and banks are reluctant to lend.

LDCs need to tackle these issues and more, putting in place economic policies for growth as well as industrial policies that target and link specific sectors. “Ensuring that social outcomes match – and contribute to – economic progress means not only investing more in health and education, but also improving its quality and distribution,” says Elson.

Background reading

Information and analysis on the LDCs, the LDC category and graduation

The UN Committee for Development Policy LDC Handbook

The 2018 UN Committee for Development Policy LDC Handbook provides comprehensive information on the least developed country (LDC) category, including a description of procedures and methods used in the identification of these countries, and the support measures associated with it.

2018 LDC handbook

Section on graduation from LDC handbook

The following downloadable Word document, extracted from the 2018 LDC handbook, describes in detail the procedures for graduation from the LDC category as well as preparation for graduation and the concept of smooth transition.

Section on graduation from LDC handbook

UN Committee for Development Policy LDC graduation impact assessments

Since 2007, the UN Committee for Development Policy Secretariat has prepared an ex-ante impact assessment of the likely consequences of graduation on economic growth and development after a country has been found eligible for graduation for the first time. The following link is to all the graduation impact assessments including the 2018 assessments for Bhutan, Kiribati, Nepal, São Tomé and Príncipe, Solomon Islands and Timor Leste.

LDC graduation impact assessments

The UNOHRLLS Guide to Least Developed Country Graduation

The UNOHRLLS Guide to Least Developed Country Graduation provides a quick, comprehensive overview of the graduation process, including graduation criteria. It provides readers with sources of further information and support.

Link

Prospects of LDCs leaving the graduation criteria by 2030

Using a range of scenarios, this paper estimates the number of LDCs likely to graduate by 2030 and works out how much progress will be needed if a substantial number of countries are to do so.

Prospects of LDCs meeting graduation criteria by 2030

Expanding Productive Capacity: Lessons Learned from Graduating Least Developed Countries

This Committee for Development Policy Note highlights the need for integrated policies across five broad policy areas: (i) development governance; (ii) policies for creating positive synergies between social outcomes and productive capacity; (iii) macroeconomic and financial policies that support productive capacity expansion and increase resilience to external shocks; (iv) industrial and sectoral policies; and (v) international support.

The Policy Note also stresses that the heterogeneity among LDCs requires different national strategies and different international support for various groups of LDCs. The Committee identified three different pathways towards graduation and highlights associated policies for each.

Expanding Productive Capacity: Lessons Learned from Graduating Least Developed Countries

A Guide to Leaving Least Developed Country Status: Sustaining Graduation with Momentum

This guide from the Commonwealth Secretariat helps policy makers adapt to the loss of tariff rents induced by graduation. It does this through the integration of Global Value Chain analysis with conventional approaches towards tariff preference erosion.
 

A Guide to Leaving Least Developed Country Status: Sustaining Graduation with Momentum

LDC Graduation and the World Trade Organisation (WTO)

The following informal note, prepared by the WTO, outlines the main WTO-related implications of leaving the LDC category, including special and differential treatment and preparing for smooth transition.

LDC Graduation and the WTO

UN Conference on Trade and Development (UNCTAD) vulnerability profiles

UNCTAD prepares a vulnerability profile after an LDC has been found eligible for graduation for the first time. The profile aims at assessing the extent of external economic and natural shocks on the economic performance and economic structure of the country under review. It might also include additional information, such as ecological fragility as well as structural handicaps not captured in the criteria used to designate LDCs by the Committee for Development Policy.

Click here to see historic vulnerability profiles for all countries

World Trade Organisation Trade Policy Reviews

Surveillance of national trade policies is a fundamentally important activity running throughout the work of the World Trade Organisation. At the centre of this work is the Trade Policy Review Mechanism. All WTO members are reviewed, the frequency of each country’s review varying according to its share of world trade.

Click here to access all Trade Policy Reviews

UNCTAD LDC Reports

The UNCTAD Least Developed Countries Report provides a comprehensive and authoritative source of socio-economic analysis and data on the world´s most impoverished countries. The Report is intended for a broad readership of governments, policy makers, researchers and all those involved with LDCs´ development policies. Each Report contains a statistical annex, which provides basic data on the LDCs.

Link to 2016 Report, 'The path to graduation and beyond: Making the most of the process'

Expert views

Advice from Committee for Development Policy specialists and others on what to look out for before the graduation process

Bangladesh celebrates meeting the criteria for the first time

Powered by better health and education, lower vulnerability and an economic boom, Bangladesh, the largest least developed country (LDC) in terms of population and economic size, looks likely to leave the LDC category by 2024. For the first time, the country met the three criteria for graduation at the triennial review of the Committee for Development Policy in 2018.