This reduces the amount the developer would otherwise have to borrow. Because the cost of servicing the debt is lower, a tax credit property can offer lower, more affordable rents. Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit 22 Steve Pomeroy, "Towards a Comprehensive Affordable Housing Strategy for Canada" in Finding Room: Toronto, , 8, 17, The amount of the annual credit is based on the amount invested in the affordable housing.
The credit cannot exceed the amount needed to make the project feasible. At least 20 percent of the units must be rent restricted and occupied by households with incomes at or below 50 percent of the Housing and Urban Development HUD-determined area median income o Rule: Developers may claim housing tax credits directly, but most sell the tax credits to raise equity capital for their housing project.
The developer can sell the tax credits: The federal government could institute a review of its own surplus lands and determine what 28 Tom Carter. Enhancing Affordable Housing in Canada Ottawa: Conference Board of Canada, , Further, the federal government could make the lands available, at preferential terms, for rental development. Again in , PST was further expanded to legal, architectural, and engineering fees. In some instances these local planning regimes discourage rental housing development.
Through policy and incentives, the Province could encourage municipalities to pursue rental housing development. Moreover, some municipalities may already be eager to promote new rental housing in their communities but require provincial support to cover waived or reduced development cost levies. Furthermore, getting the public on side with a rental housing agenda would support a longer-term effort to convince the federal government to provinces in facilitating a more favourable investment environment.
Published online before in print: Ottawa, , Raleigh, no year , It is very much a concern in jurisdictions where the rental universe has shrunk as a result of demolition and redevelopment, through conversion to condominiums or extensive renovation to higher end rental units. There are numerous ways that the Province could encourage the maintenance of the existing stock such as a renovation grant or tax credit, requiring developments to produce replacement units, or rate of change regulations.
The provincial government could institute a review of its own surplus lands and determine what land would be appropriate for rental housing development. Further, the province could make the lands available, at preferential terms, for rental development. Further, expedited approval processes for rental development applications could incentivize rent project development.
Both Vancouver and Toronto have made efforts in this regard including assigning a planner to each application and being responsible for seeing it through the process. Efforts like this would prevent developers from facing additional expenditures as a result of long approval processes45 46 40 Steve Pomeroy, Vancouver, , STIR is the following incentive package: Incentives under the STIR program are available subject to the applicant entering into a Housing Agreement to secure the rental units over time.
It may also include a prohibition on stratification. Currently the City of Winnipeg requires 1. Research indicates that car ownership on average is lower among renters as incomes tend to be lower with many relying on public transit options. To ensure that parking requirements for rental development are not excessive, parking surveys could be done to estimate rates of automobile ownership among renters. Victoria, , , The two central goals of inclusionary zoning are to facilitate the creation of mixed-income communities and to produce affordable units through private market development.
Inclusionary zoning can be designed in either a mandatory or incentive-based manner. In mandatory programs, it is compulsory that builders and developers provide affordable units as a condition of development approval. In an incentive-based program, developers and builders are offered density bonuses and fast tracked approval processes. Density bonusing is most viable in strong growth markets, particularly where land for development is scarce.
It can be within the existing dwelling or a separate detached dwelling unit. In either case, the secondary suite is subordinate in size, or accessory, to the main dwelling unit. Also, the City of Winnipeg has recently amended its by-laws facilitating an easier process for both attached and detached secondary suites. Research Highlights - Municipal Regulatory Initiatives: Providing for Affordable Housing. CMHC, , 1. Smart Growth BC, , The Secondary Rental Market: A Literature Review and Case Study. According to Roundtable discussions, there are two underlying factors that contribute to affordability issues: Within the current environment, developers and investors have demonstrated limited interest in new construction because the risk is seen as too high and rate of return unattractive.
Further, there is an erosion of the existing private affordable stock through dereliction, condo conversion, and renovations that increase rents. While there is some new supply at higher rent levels, weak incomes have intensified affordability problems. Low-incomes also limit access to existing units as, in a tight market, landlords are more likely to prefer tenants with higher-income and stronger references.
Responding to problem; two policy option areas: The following table summarizes policy options organized by demand and supply side interventions. The information in these tables draws on the following studies: A Call for Action. Ideally project becomes viable on rent revenue after that point.
Allowed for the postponing of capital gains tax for owners who were re-investing in rental market. Rising rents and persistently low vacancy rates necessitate the development of new and expanded supports for new rental housing investment. Manitoba Housing has a legislative mandate to study and bring about change in the housing market for the good of all citizens.
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To this end, the Minister of Housing and Community Development invited various housing stakeholders to assemble for the creation of a consultative and collaborative group to provide professional expertise and specialized knowledge relevant to the issue of developing rental housing in Manitoba. Through the representation of a wide spectrum of communities, population groups, and sectors, the roundtable has operated under a principle of collective responsibility as it provided balanced advice and expertise.
A list of participants can be found in appendix B. It contains proposals for the production of new rental housing in Manitoba. These proposals are the result of discussions Roundtable members engaged in beginning in June, The purpose of this advisory document is to capture the work of the Rental Housing Supply Roundtable which was to identify issues, solutions, and put forward proposals.
The Roundtable employed a broad-based, solution focused approach for the development of informed, strategic proposals that identified gaps, barriers, and options for the response to rental housing supply issues in Manitoba. In some cases further analysis may be required to determine the specific design of the tool or policy. Such incentives should come from the federal, provincial, and municipal levels of government. This approach must bring together public, private, and non-profit stakeholders in a partnership package that includes various measures. It was urged that in addition to engaging the federal government on matters external to the province, a concerted effort by the Province, municipalities, housing providers, social advocates, and private industry must be made to address barriers and provide incentives for the formation of a Made in Manitoba approach.
PST Provincial Sales Tax adds cost on services and materials needed to develop new purpose-built rental housing. Because PST is the singular domain of the provincial government, waiving or reducing the tax would be a clear signal to developers that the Province is committed to a Made in Manitoba approach to new rental housing supply. The Rental Housing Supply Roundtable proposes a PST reduction on materials and services used in the construction of new purpose-built rental housing.
Property or income tax Municipalities and the Province should stimulate the development of rental housing by attracting investment through property tax relief. In some municipalities, property tax on multiple unit buildings is higher than rates levied on owner-occupied dwellings. Reducing the property tax on rental properties would reduce operating costs and could pass lower rents on to tenants. The Rental Housing Supply Roundtable proposes the Province work with municipalities to equalize property tax rates on rental housing.
With respect to rental properties, eliminating the education tax would reduce operating costs and could pass lower rents on to tenants. The Rental Housing Supply Roundtable proposes that the Province remove the education tax from property tax bills of rental housing properties, both primary and secondary markets. Tax increment financing Tax increment financing TIF is a tool that allows for the promotion of specific types of development by earmarking anticipated tax revenue increases for the purpose of creating a revitalization fund.
In simple terms, it enables a local authority to trade anticipated future tax income for a present benefit. Currently TIF is available for certain developments in downtown Winnipeg. The demand for both market and subsidized rental units, has not been met by new production, and within the current environment investors have demonstrated only limited interest in new construction.
Simply the risk is too high and rate of return unattractive. Further, where there has been new rental construction, the costs are such that it creates rents unaffordable to many Manitobans. The problem of a lack of construction is compounded by the erosion of the existing private affordable stock through dereliction, condo conversion, and renovation. Once a new tenant moves into the unit, the rent regulations are re-applied. Views on the Provincial rent guidelines remained contentious throughout the Roundtable process.
Property managers and developers maintain that the guidelines discourage new investment in rental housing by having a negative impact on the rate of return. Other members made the case that the regulations are necessary to protect tenants from drastic rent increases, especially in tight rental markets. Further, some members pointed out that numerous exemptions are already in place. Capital Grant For the purpose of estimating the required per unit subsidy for the creation of new reasonable market rent units, the City of Winnipeg modeled a pro-forma revenue and costs exercise, that assumed low rise e.
The benchmark for rent affordability is often seen as median rent. Model is helpful for establishing a rough guide only.
The Rental Housing Supply Roundtable proposes that the Province provide capital grants on a per unit basis to stimulate the development of reasonable market rents. The amount would have to be enough to contribute to, in conjunction with other measures, addressing the gap between reasonable market rents and revenue required for an attractive rate of return. In some parts of the province, this grant at minimum may have to be 15K per door. This estimated grant level would incent new production at current new rental market rates, but not necessarily an affordable unit.
Because of cost variances from centre to centre, rather than proposing a specific grant amount, the Rental Housing Supply Roundtable is proposing that developers apply for grants through a request for proposal RFP competition. Developers would be required to document how much they needed to produce rental units, and available grants would vary depending on the details of the project and location. Development Cost Charges Development cost charges are levied on new development to offset the cost of new infrastructure serving needs.
Developers have to pay the levies, which contributes to the cost of construction and factors into the rents that are ultimately charged. Development cost charges vary from municipality to municipality and cross-jurisdictional comparison is difficult because different municipalities categorize their fees differently. The Rental Housing Supply Roundtable proposes the Province work with municipalities towards reducing or waiving development costs on purpose-built, rental housing development.
The Rental Housing Supply Roundtable proposes that the Province encourage municipalities who do levy development charges to do so on a per project, rather than per door basis. Tax Credit Program A major barrier preventing the production of new rental housing is an investment environment that does not allow the industry to gain a strong rate of return. The provincial government could stimulate the creation of affordable rental housing by offering tax credits to developers who create affordable housing.
Tax credits could be issued directly to develop rental units or could be handled through a credit trading system to attract other investment. LIHTC is strongly supported by housing advocates and the building industry and is considered by analysts to be an effective tool for creating new affordable rental supply.
The program provides tax credits worth a high percentage of 43 construction costs under the condition that landlords accept only tenants with incomes no higher than 60 percent of area medians and set rents at an affordable level 30 percent of tenant gross household income. The Rental Housing Supply Roundtable proposes that the Province create an affordable, rental housing tax credit program that has specific applicability to the Canadian and Manitoban tax environments. STIR is a measure that refers to the proportion of total before-tax household income spent on shelter.
Housing which costs less than this is considered affordable. Defining affordability in terms of a percentage of income allows for the relativity of situations in which income becomes insufficient to pay shelter cost as well as the myriad of other household expenses. Based on household incomes, as a point of reference, Average rent by type, Winnipeg The following two tables illustrate low-income rates for all persons as well as specific groups who would likely have difficulty competing in the private rental market.
Brian Murphy et al. Providing a diverse range of housing options will better allow people, of various needs, to access suitable housing. Fostering housing choices at various affordability levels and of a variety of housing sectors, will move us forward to meeting the housing needs of our most vulnerable citizens as well as households looking to compete in the non-profit, co-op and private rental markets. The Rental Housing Supply Roundtable proposes that the Province pursue supply measures that housing sectors across the housing continuum, including non-profit, co-op, affordable private, and private market rental units have equal access to.
LICO is a relative approach to measuring low-income. MBM is an absolute approach to measuring low-income. The Rental Housing Supply Roundtable proposes that private rental development subsidy programs be designed to include a conditional affordability eligibility requirement. The size and depth of subsidy should be established based on a sliding scale of affordability. In addition to providing incentives that support housing supply across the continuum, protecting the existing affordable and social housing stock requires a continued public investment.
To this end, support for the existing social, non-profit and co-op sectors is needed. The Rental Housing Supply Roundtable proposes that the Province continue investing in the publicly- supported stock and improve the quality of the affordable, private rental stock. With a need for a range of housing options in mind, affordable housing choice can be further supported through secondary suites. The Province already has a secondary suite grant program and the City of Winnipeg is in the process of reviewing its relevant bylaws.
The Rental Housing Supply Roundtable proposes that the Province and municipalities work together to further support the development of secondary suites. Incomes Incomes have not kept up with the rate in which rents have risen in Manitoba. While there is some new rental supply at higher rent levels, lower incomes are unable to access them. The following table illustrates the manner in which income growth has not kept pace with the rise of rents. Canadian Housing Observer, EIA shelter allowances must be reviewed and re-indexed to better reflect conditions and costs of living.
The Coalition argues that such an increase would restore the benefit to its level. A portable shelter allowance program pays a subsidy directly to working low income Manitobans to improve their living situation and allow them to better compete in the existing private rental market. Portable shelter allowances differ from rent supplements which are attached to a specific unit. The table below illustrates how for a large number of Manitobans, low-income is a product of labour market participation, not exclusion from it.
When youth are excluded the rate falls to The Rental Housing Supply Roundtable proposes that the Province review existing EIA shelter rates and increase the benefits to better reflect the cost of housing; and further, that this review be made a regularly scheduled process. Labour Market Support Rental Housing Supply Roundtable members have stated that industry conditions are such that even in a pro- development investment environment, new construction would likely be impeded by capacity issues. In other words, in Manitoba we do not have the industry capacity to meet the demand for new supply because skilled labour shortages limit the rate of new development.
The report says an estimated 6, new workforce entrants will join the construction industry, but that retirements will also reduce it by about 6, The exit of 6, workers attributed to retirements and mortality raises the total labour force requirement to 10, With only 6, new entrants expected to join the industry across the scenario, a balance of 4, workers will need to be recruited from outside the local construction market to meet labour requirements. The Rental Housing Supply Roundtable proposes that the Province partner with the Manitoba Construction Sector Council to help support labour market training programs; and further, that labour market training programs with a specific aim towards training Aboriginal Peoples, new Canadians, women, and youth be developed.
Community Capacity In addition to labour shortages, capacity is also a concern with regard to what some Manitoba communities are able to achieve. There is a general need to build expertise in many municipalities. Many that are being affected by immigration and experiencing population growth have not had to plan, develop land, attract housing investment or improve infrastructure for many years.
Some of these municipalities need funding support for land and infrastructure development but they also need help building a base of expertise that will facilitate planning and housing 49 development. The Province already provides support to planning districts, but knowledge of this support should be intensified to make communities aware of tools available to increase rental housing supply. Supports for municipalities could include: The Rental Housing Supply Roundtable proposes that the Province develop a set of resources, supports, and capacity building tools to help communities in the production of new rental housing.
Regulations ought to support rather than impede affordable rental development and at times they add cost and reduce capacity. Permitting Process Expedited approval processes for rental development applications could provide incentives for rental project development. Both Vancouver and Toronto have made efforts in this regard including assigning a planner to each application.
The planner is responsible for seeing the application through the process. Efforts like this would prevent developers from facing additional expenditures as a result of long approval processes. The Rental Housing Supply Roundtable proposes that the Province work with municipalities to help them establish an expedited permit approval process for rental development applications. Regulatory obstacles such as these require significant study and consultation before appropriate decisions can be made, therefore the Rental Housing Supply Roundtable has concluded that further consideration is required before specifics can be offered.
The Rental Housing Supply Roundtable proposes that the Province engage in dialogue and partner with relevant provincial departments, municipal governments, labour organizations, or industry associations to create a regulatory environment more hospitable to new rental development. Attempts to engage the general population on this issue are often instigated by niche organizations and the media tends to pigeonhole their efforts.
A lack of awareness of the economic and social benefits of new, rental housing development can lead to NIMBYism, a tendency for residents to oppose new rental development. The Province should be a leader on the issue and mount a public awareness campaign to explain the numerous benefits and contributions rental housing can make to a community.
Furthermore, getting the public on side with a rental housing agenda would support a longer-term effort to convince the federal government and provinces to facilitate a better investment environment. The Rental Housing Supply Roundtable proposes that a broad-based coalition, made up of advocates and industry associations, be formed to raise rental housing issues to the broader Manitoba community.
Such a body could evolve as an offshoot of the Roundtable and be continuous and on-going. The Rental Housing Supply Roundtable proposes that the broad-based coalition give talks and presentations at various forums across the province. P, M A4 The Rental Housing Supply Roundtable proposes that the Province remove the education tax from property tax bills of rental housing properties, both primary and secondary markets. Because of cost variances from centre to centre, rather than proposing a specific grant amount, it the Rental Housing Supply Roundtable is proposing that developers apply for grants through a request for proposal RFP competition.
Developers would be required to document how much they needed to produce affordable rental units, and available grants would vary depending on the details of the project and location. P B2 The Rental Housing Supply Roundtable proposes the Province work with municipalities towards reducing or waiving development costs on purpose- built, rental housing development. M B3 The Rental Housing Supply Roundtable proposes that the Province encourage municipalities who do levy development charges to do so on a per project, rather than per door basis.
M B4 The Rental Housing Supply Roundtable proposes that the Province create an affordable, rental housing tax credit program that has specific applicability to the Canadian and Manitoban tax environments. P C1 The Rental Housing Supply Roundtable proposes that the Province pursue supply measures that housing sectors across the housing continuum, including non-profit, co-op, affordable private, and private market rental units have equal access to.
P C2 The Rental Housing Supply Roundtable proposes that private rental development subsidy programs be designed to include a conditional affordability eligibility requirement. P C4 The Rental Housing Supply Roundtable proposes that the Province and municipalities work together to further support the development of secondary suites. P,M C5 The Rental Housing Supply Roundtable proposes that the Province review existing EIA shelter rates and increase the benefits to better reflect the cost of housing; and further, that this review be made a regularly scheduled process.
P D2 The Rental Housing Supply Roundtable proposes that the Province develop a set of resources, supports, and capacity building tools to help communities in the production of new rental housing. P, M E2 The Rental Housing Supply Roundtable proposes that the Province engage in dialogue and partner with relevant provincial departments, municipal departments, labour organizations, or industry associations to create a regulatory environment more hospitable to new rental development.
F3 The Rental Housing Supply Roundtable proposes that the broad-based coalition give talks and presentations at various forums across the province. A voting process yielded the following shortlist: B1 The Rental Housing Supply Roundtable proposes that the Province provide capital grants on a per unit basis to stimulate the development of reasonable market rents. C1 The Rental Housing Supply Roundtable proposes that the Province pursue supply measures that housing sectors across the housing continuum, including non-profit, co-op, affordable private, and private market rental units have equal access to.
C5 The Rental Housing Supply Roundtable proposes that the Province review existing EIA shelter rates and increase the benefits to better reflect the cost of housing; and further, that this review be made a regularly scheduled process. D1 The Rental Housing Supply Roundtable proposes that the Province partner with the Manitoba Construction Sector Council to help support labour market training programs; and further, that labour market training programs with a specific aim towards training Aboriginal Peoples, new Canadians, women, and youth be developed.
There was some debate with regards to the efficacy of lobbying the federal government as Ottawa has been resistant to rental housing incentive programs. This situation is reflected in this report being divided by a Made in Manitoba approach as well as long-term matters. The following outlines issues and proposed solutions relevant to federal jurisdiction and federal engagement.
There is no incentive to encourage rental building owners to invest in new rental developments. The Rental Housing Supply Roundtable proposes that the federal government increase the capital cost allowance deduction on rental properties. This tax environment encourages new rental supply. Also, rents are classified as GST-exempt, which means GST is not charged to renters, but owners cannot claim input credits in constructing or operating buildings.
Owners could only claim these credits if rents were re- classified as zero-rated goods. The mortgage insurance premiums effectively doubled and the restrictive underwriting criteria had the effect of mandating that investors put up a much larger equity investment than might otherwise have been necessary.
The federal government could institute a review of its own surplus lands and determine what land would be appropriate for rental housing development. The Rental Housing Supply Roundtable proposes that the federal government make land for rental development available at reduced costs. There has been no announcement of similar changes with respect to underwriting for new rental projects. The Rental Housing Supply Roundtable proposes that the federal government provide predictable, long-term funding for new social housing supply and renovation programs.
In addition to support from the Province and municipalities, labour training and economic development partnerships could be strengthened by federal participation. Federal labour training initiatives already exist that may need re-focusing. The Rental Housing Supply Roundtable proposes that in partnership with the Province of Manitoba and the Manitoba Construction Sector Council, the federal government help support labour market training programs that aid industry capacity. Earlier in this document it was proposed that the provincial government could stimulate the creation of affordable rental housing by offering tax credits to developers who create low cost housing.
Such a tax credit program could be enhanced with federal participation. The program provides tax credits worth a high percentage of construction costs under the condition that landlords accept only tenants with incomes no higher than 60 percent of area medians and set rents at an affordable level 30 percent of tenant gross household income. It is thought that work put into a Made in Manitoba approach will bolster our position with respect to federal engagement With that said, Roundtable members supported building a broad-based alliance of public, private, and non-profit stakeholders across Canada to help better make our case to the federal government.
The Rental Housing Supply Roundtable proposes that a private-public coalition, specific to federal rental housing incentives, should be formed with counterparts in other provinces and territories. The coalition ought to be multi- stakeholder and should be supported by private industry and social policy organizations. Federal Issues — summary table Issue Proposal Capital cost allowance The Rental Housing Supply Roundtable proposes that the federal government increase the capital cost allowance deduction on rental properties. Federal land for affordable housing development The Rental Housing Supply Roundtable proposes that the federal government make land for rental development available at reduced costs.
Affordability The Rental Housing Supply Roundtable proposes that the federal government renew operating agreements with social, non-profit, and co-op housing providers to maintain the viability of the publicly-supported affordable housing stock. Industry capacity The Rental Housing Supply Roundtable proposes that in partnership with the Province of Manitoba and the Manitoba Construction Sector Council, the federal government help support labour market training programs that aid industry capacity.
Low-income housing tax credit program The Rental Housing Supply Roundtable proposes that the Province of Manitoba, in conjunction with the federal government, create an affordable, rental housing tax credit program. Engagement The Rental Housing Supply Roundtable proposes that a private-public coalition, specific to federal rental housing incentives, should be formed with counterparts in other provinces and territories.
The coalition ought to be multi-stakeholder and should be supported by private industry and social organizations. Housing In My Backyard: Accessed November , http: The Financing and Economics of Affordable Housing: Incentives and Disincentives to Private-Sector Participation. Canada Mortgage and Housing Corporation. Canadian Housing Observer Rental Market Report, Manitoba Highlights. Unpublished internal data, shared upon request. Canadian Real Estate Association. Accessed January , crea. Discussion paper prepared for Winnipeg Realtors. The Manitoba Provincial Nominee Program: Attraction, Integration and Retention of Immigrants.
Institute for Research on Public Policy. David Hulchanski and Michael Shapcott. Accessed April , https: Winnipeg Housing Steering Committee. While relatively uncontroversial from a purely economic perspective, in practice they would result in the enhancing policy space available to developing countries, something that is likely to be resisted by a number of trading partners.
The package essentially consists of a series of political statements, non-binding commitments, and procedural decisions with very few tangible and immediate benefits for developing countries. In other areas, such as cotton, proposals were submitted so late in the game that they had virtually no chance of being taken on board ahead of the ministerial. But it will not function as a negotiating forum. In cases in which the review identifies a problem, the mechanism may make recommendations — including, if necessary, that negotiations be launched — to the relevant WTO body.
These confer an economic nationality to products traded internationally. In the context of trade preference granted to LDCs — such as duty-free, quota-free schemes — RoO define how much processing must take place locally before goods are considered to be of an LDC origin and therefore benefit from preferential treatment. In practice, preferential RoO are often considered too restrictive and inflexible, making it difficult for LDCs to effectively take advantage of the intended preferences.
Furthermore, these are designed on a unilateral basis by preference-granting countries, without any harmonised standard. A long-standing demand of LDCs has therefore been to promote enhanced harmonisation and simplification of RoO. The Bali decision contains, for the first time, a set of multilaterally agreed guidelines, which should make it easier for LDC exports to qualify for preferential market access WTO, g. It reiterates that RoO should be as transparent, simple, and objective as possible but also recognizes that each country granting trade preferences to LDCs has its own method of determining such rules.
The decision then provides some illustrations of how RoO can be made easier to comply with. The decision is however in the form of non-binding guidelines, implying that developed member countries are free to choose to follow these guidelines or not.
Several studies have however pointed to the large potential for LDC growth in this sector. While representing a significant win for LDCs, the waiver itself does not confer any direct economic benefit. It first needs to be operationalised through the establishment of new unilateral trade preference schemes that cover services. The CTS will also convene a high-level meeting six months after the submission by LDCs of a collective request identifying the sectors and modes of supply in which they would like to receive preferences.
At that meeting, developed and developing members, in a position to do so, shall indicate where they intend to provide preferential treatment to LDC services and service suppliers. As with the monitoring mechanism, this decision essentially set up a process through which LDCs might advance their concerns but does not result in any immediate economic gains at this stage.
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Since then, several developed countries and some emerging economies have put in place DFQF schemes of various kinds. For example, whereas Canada, Japan, and the EU provide duty-free coverage to over 98 per cent of tariff lines and feature few exclusions, the US trade preference schemes admit on average only At the other extreme, it appears that Lesotho would be negatively affected.
Even so, its loss would be a mere 1 per cent of exports, or about USD 5 million — an amount largely offset by Aid-for-Trade flows in recent years. This was largely reflected in the lack of significant progress at MC9. At that time, the C4 countries accused the EU and the US of providing trade-distorting subsides to their farmers, depressing world prices and affecting poor producers in Africa unable to compete with Brussels and Washington treasuries.
Prices have increased significantly, reducing pressure in the EU and US to provide farm payments. As a result, subsidies in the US have declined from historical highs and are projected to be lower as a result of the new US farm bill.
Higher prices for alternative crops, such as corn and wheat, together with declining yields and rising production costs of cotton have also provided incentives to US farmers to move away from cotton production. At the global level, patterns of trade have shifted and new players have emerged.
India has moved from a net importer to the second largest exporter of cotton. China is now the largest producer, importer, and consumer of cotton worldwide. Granted, all these factors have contributed to reducing the pressure of subsidies on African cotton producing countries, but at the same time they have also eased the political challenge of reforming trade-distorting payments. Along with budgetary pressures in the US and elsewhere, they suggest that the time for cotton reform has never been better.
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Members will meet twice a year to study the latest information and to discuss the latest developments on market access, and domestic support and export subsidies for cotton, particularly from LDCs. As highlighted above, part of the reason for such a limited outcome relates to the fact that the C4 proposal to address this issue at MC9 came exceedingly late in the game, at a time when members were not ready to contemplate ambitious commitments in the light of other pending issues that needed to be resolved, not least regarding trade facilitation.
In a world increasingly dominated by global value chains, the gains occurring from simplified customs procedures and lower transaction costs are well established. But the most significant gains are likely to arise from a possible boost in intra-regional trade where considerable growth potential remains untapped. Granted, some countries will have real difficulties in implementing certain elements of the agreement in the absence of technical assistance and capacity building.
These concerns have largely crystallised around the need to balance sections I and II of the agreement. But the deal contains a set of landmark provisions allowing for flexibility in the scheduling and sequencing of implementation, and linking commitments to acquired capacity resulting from technical assistance. Beyond technical assistance, political momentum and sufficient time will also be essential to overcoming resistance to change.
Experience so far has shown that the introduction of formal trade facilitation reforms is not always followed by full implementation in the day-to-day operation of border agencies because of the difficulty of changing entrenched behaviours and the desire to preserve rents. Specifically, reforms are only successful if there is a high degree of political acceptability and public support.
In terms of sequencing, experience has shown that equipment and infrastructure should be viewed as implementation tools to be carefully combined with regulatory, institutional, or human-resource changes.
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In this respect some observers have suggested that the flow of aid should be conditionally tied to legislative reforms so that it is more difficult for it to be reversed by opposing forces. Finally, there should be a willingness to continue reforms beyond the life of the aid initiative. The proposed decision on rules of origin, as important as it is, only constitutes a best endeavour agreement. Similarly, there is little to expect on cotton or on duty-free, quota-free market access where LDCs themselves have not managed to overcome their internal divisions.
As net food importing countries, LDCs have been hit hard by recent price spikes further accentuated by policy responses such as export restrictions or biofuels policies. As a result, they have seen their food import bill growing to worrying levels while productivity growth has remained stagnant, putting large segments of their populations at risk.
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These concerns, largely associated with the new price environment prevailing in agriculture, will require targeted responses from the system. While they have not been resolved in Bali, LDCs might consider addressing them as part of a post-Bali work programme on food security. But the Bali deal only addressed a subset of the Doha Round, and —even then — achieving consensus on this limited package of low-hanging fruit proved particularly challenging.
Beyond the intrinsic value of the Bali package itself, the immediate question for the WTO is therefore how to build on Bali to deliver on the broader Doha Agenda. But no clear process has been established to bring Doha to closure. Issues for which legally binding outcomes could not be achieved will be prioritised. Finally, ministers recalled the need expressed at the ministerial to explore different negotiating approaches while respecting the principles of transparency and inclusiveness, and to look at ways of overcoming the most critical and fundamental stumbling blocks.
However, as the MC9 dust settles certain elements seem to be slowly emerging. First, on substance, three sets of issues will have to be addressed. In trade facilitation, for example, a preparatory committee will have to draft a protocol of amendments to include the agreement under the WTO framework. Members will have to ratify it and notify their commitments under Category A, B, or C. Developing countries and LDCs will also need to identify their respective needs for technical assistance and capacity building.
In agriculture, countries wanting to use the peace clause will have to notify their respective programmes. Under the services waiver, LDCs will have to submit a joint request highlighting sectors in which they would benefit from trade preferences in services, etc. These issues are not easy but the way forward is relatively clear.
Here, the emerging feeling is that the Bali approach, consisting in identifying a small set of low-hanging fruit for early harvest, might not be replicable in the future. While most countries greatly appreciated the transparent and inclusive Bali process, the approach has probably been exhausted, not least because there are not many — if any — low-hanging fruit left around which to build a small package. This means that members will have to find a way of tackling some of the core issues that have been put on hold since , starting with the highly controversial agriculture talks.
Granted, not all of them might be resolved in one go, but completely avoiding them seems impossible at this stage. Some countries argue that what has been achieved so far should form the basis for any future negotiations. They argue that while the overall objectives defined in the Doha mandates might remain relevant, the negotiating texts developed since then essentially reflected a reality prevailing in the late s and early s which has largely evolved over the last 15 years. Under these circumstances, any fruitful conversation needs to incorporate, as a minimum, a sound understanding of this new global reality and its implications for the main players or the various country groupings.
If a Bali type of low-hanging-fruit package is not realistic, members should consider crafting a new package carefully calibrating ambition and feasibility. Such a package would probably need to include elements of agriculture, industrial products, and services, and a set of specific development and LDC issues. This is probably the approach that will ultimately be adopted.
How to achieve the right balance under a new package remains, however, highly challenging. If consensus is too difficult to achieve among all WTO members, this approach suggests that nothing should prevent a coalition of willing countries from moving forward and reaching agreement among themselves on selected issues. Negotiations under such approaches are already underway in a number of areas including services with the Trade in Services Agreement TISA 16 or, since January , on environmental goods among a group of 14 WTO members — including the US, the EU, and China — comprising 86 per cent of the global trade in environmental goods.
A critical aspect of such approaches is ensuring that they remain under the WTO umbrella, transparent, and open to new comers. If the benefits are extended to non-members on a most favoured nation MFN basis, as would probably be the case with critical-mass agreements such as ITA, environmental goods, and TISA, such approaches will ultimately contribute to strengthening the multilateral trading system. The package itself is substantive with a comprehensive agreement on trade facilitation which might significantly reduce red tape and the cost of doing business. In a world increasingly dominated by global value chains, achieving such a result will surely reinvigorate business interest in multilateral negotiations.
The success of Bali also needs to be put into perspective. How WTO members will define such a work programme remains speculative source of great speculation at this stage. At the same time, it might be impossible to do this without taking a fresh look at the negotiating texts, in the light of recent changes in the global economy. In this context, there is clearly a need for a new conversation, particularly among key players, focusing on what such players might be willing to offer in light of the new global environment in which we live.
The extent to which leading WTO members are willing to engage in such a conversation in the coming months will probably determine the fate of the Doha Round. Gruere , Cotton: Centre for Global Development. Where to Spend the Next Million? Bellmann and M, Rodriguez-Mendoza eds.
A collection of short essays Geneva: Peterson Institute for International Economics. Sorescu , Trade Facilitation Indicators: Indira Gandhi Institute of Development Research. According to the Bali understanding, if a quota is persistently under-filled — and information-sharing and consultations prove fruitless — the importing government would have to apply one of a prescribed set of methods for administering quotas aimed at removing impediments. One of them would consist in increasing the 10 per cent de minimis limit, but this would probably be an uphill battle.
Another option could consist in better defining what eligible production means. Some countries have interpreted this as meaning the amount of food actually bought under the public stockholding scheme. But in the Korea-beef dispute, the WTO panel argued that eligible production should be understood to be the amount of food that would qualify for the scheme in terms of the quality and type of product and not the amount actually purchased unless there is a legislative predetermined limit on the quantity eligible.
Rwanda and Senegal, for example, have developed a fledging outsourcing industry based on back-office operations and call centres. Bangladesh has moved up the BPO value chain by specializing in services such as software design and data access solutions. China and Uruguay have requested to join the group, a move that has been resisted by some participants raising questions about the extent to which such negotiations are open to new members. Peer-reviewed journal that promotes cutting-edge research and policy debates on global development. Published by the Graduate Institute Geneva, it links up with international policy negotiations involving Geneva-based organisations.
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