Pacific Money

Bhutan’s Long Journey Into the World Trade Organization

Recent Features

Pacific Money | Economy | South Asia

Bhutan’s Long Journey Into the World Trade Organization

25 years after Bhutan first applied to join the WTO, recent developments seem to be giving Thimphu a final push. 

Bhutan’s Long Journey Into the World Trade Organization
Credit: Depositphotos

A Buddhist kingdom where GDP has been replaced by an index of Gross National Happiness: This is one of the images Bhutan cultivates abroad. For almost a quarter of a century, the reclusive mountain nation has blown hot and cold on its accession to the World Trade Organization, a proxy for the country’s wavering integration with the outside world. 

Bhutan first applied to the WTO in 1999. However, accession proceedings lost steam as various government officials clashed over the matter. While supporters of WTO membership cited the potential gains of trade liberalization, prominent detractors feared WTO rules would not gel with the country’s happiness index. 

Now it seems that the deadlock has finally been broken. Karma Dorji, Bhutan’s outgoing minister of industry, commerce and employment, announced last April that the government had at long last approved the country’s WTO accession, and expressed hope that the process could be completed by the end of 2023. Due to insufficient standards, he said, the government has earmarked 100 million Ngultrum (around $1.2 million) to develop labs and testing facilities. It will also support the construction of dry ports, waterways, and other infrastructure to heighten Bhutan’s connectivity in anticipation of increased trade.

Despite the opposition’s win in this January’s elections, it is not thought that the incoming government will reverse course. Both the victorious People’s Democratic Party (PDP) and the Bhutan Tendrel Party (BTP), which will be the opposition in Parliament, focused on Bhutan’s gloomy economic outlook during their campaigns. According to World Bank data, Bhutan’s GDP has grown at an average of 1.7 percent over the past five years, and the country faces a mass exodus among skyrocketing youth unemployment. As such, joining the WTO might provide a way for the PDP to deliver on its campaign promise to double the country’s GDP, multiply its rates of foreign direct investment, and create thousands of new jobs. 

Besides, King Jigme Khesar Namgyel Wangchuk remains the decisive voice in Bhutanese politics, and it is inconceivable that the revitalization of WTO accession talks could have been decided without his approval.  

Bhutan’s belated decision has been welcomed by the WTO. In July, Accessions Division Director Maika Oshikawa visited Thimphu to meet with Foreign Secretary Pema Choden, who serves as Bhutan’s chief negotiator in the accession process. The two discussed Bhutan’s Legislative Action Plan and Market Access Offer on Goods, with another delegation reviewing the Market Access Offer on Services later that month. 

However, officials likely had to temper hopes that Bhutan would be able to accede any time soon. Applicants expected to join the WTO in the near future, such as Timor-Leste and the Comoros, have been actively negotiating their accession for years, as have countries further down the waitlist like Uzbekistan and Azerbaijan. 

What changed Thimphu’s mind about the WTO? One factor is its “graduation” from the status of a Least Developed Country (LDC), which took place at the end of 2023. Graduation from LDC status is determined by the United Nations according to several economic indicators, and within the WTO it entails the loss of certain privileges and flexibilities. Of course, Bhutan would lose these perks regardless, but by graduating before joining the WTO, it may lose out on the ability to seek an extension to certain provisions. The WTO also has special, more lenient accession guidelines for LDCs, which Bhutan may still be able to leverage by revitalizing the accession process before graduating. 

Beyond the LDC graduation, experts contend that the country must strive to stand on its own feet as it begins to attract less foreign aid. This necessity was underscored by the COVID-19 pandemic, when Bhutan’s development level helped it secure $35 million from the World Bank. However, the pandemic still dealt a major blow to its tourist industry, which employs over a seventh of Bhutan’s population and provides a major source of foreign currency. In this context, it is significant that Industry Minister Dorji laid particular emphasis on joining the WTO as a way to boost Bhutan’s FDI, which is also a priority for the incoming government. 

Thimphu’s swing toward the WTO also seems to suggest a willingness to compromise on its touted GNH index, as some observers suggest that Bhutan is growing weary of emphasizing happiness over GDP. For one, the method of calculating GNH is lengthy and expensive, requiring the government to compensate its respondents for a day’s worth of wages and to process responses to 300 questions. Furthermore, focusing on happiness does not seem to have helped Bhutan address outstanding issues like the entrenched income gap, persistently high youth unemployment, and worrying emigration rates. 

Abandoning GNH would be a major change, but it is not impossible if conducted in a face-saving way. The index is the brainchild of Bhutan’s Fourth King Jigme Singye Wangchuk, who declared it more important than GDP as early as 1972. Since then, Bhutanese officials have championed the idea abroad, and in 2008 Bhutan’s first democratically elected government even enshrined it in the country’s constitution. 

However, the current king, Jigme Khesar Namgyel Wangchuk, has not been as vocal a supporter of the concept, and Bhutan’s prime minister-elect, Tshering Tobgay, even said in 2013 (during his first tenure as PM) that he preferred to focus on more “concrete goals.” The critique may have been an early indication of a changing course. 

Finally, there is the geopolitical dimension. In his announcement of Bhutan’s accession plans, Dorji emphasized the country’s sovereignty. This is particularly significant as India accounts for 93.3 percent of the country’s exports and 77.3 percent of its imports, recently losing some ground to China in the latter domain. Although India has traditionally held much sway over Bhutan’s defense and foreign policy, New Delhi now stands by uneasily as Bhutan discusses its border dispute with China, with some Indian analysts fearing that the resultant deal may be disadvantageous to New Delhi. Acceding to the WTO may help Bhutan diversify its trade partners and avoid overdependence on either country, thus giving Thimphu more leverage in negotiations.  

Whatever the calculations behind Bhutan’s WTO bid, the consequences will be significant. Some fear a rapid westernization of the country’s customs and consumption habits, while others ponder how well Bhutan will handle the risks of open global trade. With growing economic uncertainty and volatile borders, one thing is certain: Big changes are on the horizon for the Himalayan kingdom.