Capacity, trade and development

What OECD countries must do

Opening up markets is important, but only part of the challenge. More effort is needed to help developing countries trade in the first place. This is a complex challenge.

In Cancún, the world’s poorest countries were denied opportunities to benefit from more liberalised and less distorted world trade. But rather than indulge in recriminations, it is time to seek a common ground to help restart the WTO negotiations in earnest. In their own interest, individual OECD countries can provide leadership to restore confidence in the embattled trade round and deliver to the poor the promises made at Doha.

It is important to recall in this context that the Doha Ministerial Declaration has set a clear target by making a commitment to the “objective of duty-free, quota-free market access for products originating from LDCs (para. 42)”. Trade is one of the most important policy areas for development. However, many less developed countries have not been able to take full advantage of the opportunities resulting from enhanced market access.

Despite various initiatives for the least developed and other developing countries, such as the EU’s Everything but Arms initiative, the US’s African Growth and Opportunity Act, as well as the renewal of the Generalised System of Preferences by several individual OECD countries as well as the EU, there is little prospect today of moving towards a concerted initiative favouring global duty-free, quota-free market access for the least developed countries.

Studies, including one recently conducted by the OECD, suggest that non-reciprocal trade preferences have generated limited (at best) economic success in terms of increasing the trade shares of developing countries and fostering their growth and diversification. There is certainly no shortage of explanations for this. Factors influencing the effectiveness of trade preferences (with no particular order of importance) are: insecure market access; insufficient product coverage; excessively stringent rules of origin with respect to the industrial capacity of developing countries; poor understanding or awareness of the preferences available and the conditions attached; weak capacity; and non-trade related conditions, like infrastructure.

Concern has also been raised over the question of inappropriate specialisation on the part of beneficiary countries – can the industry or sector concerned remain viable without preference margins? At the same time, many poor countries see that ensuring a competitive presence in OECD markets is becoming increasingly difficult, due to the supply-side constraints they face at home. This is particularly the case when non-market price factors, such as standards, are taken into consideration.

At the Doha meeting two years ago, trade ministers made clear their appreciation that the development challenges facing poor countries cannot be addressed through trade negotiations alone. Several trade and development objectives have to be tackled comprehensively, such as the need to import essential materials at affordable world prices to expand exports, to enhance the ability of firms to meet the price and quality requirements of their clients, and to build the legal and physical infrastructures conducive to fostering businesses capable of fending for themselves on the global market.

Dealing with these issues is fundamental. Trade ministers recognise the importance of greater coherence in global policymaking and have made a renewed commitment to continue working with relevant national and international agencies to help poor countries bring trade into the mainstream of their national strategies for development and poverty reduction.

The developed world should intensify its efforts not only in training poor countries’ trade negotiators but, more importantly, in helping them to develop and diversify their productive capacity, particularly in agriculture, so that poor countries might take further advantage of trade liberalisation.

OECD countries have recently become much more active in trade-related capacity building. Between 2001 and 2002, such activities increased by 22%, on average, and the value of bilateral aid for trade-related development purposes rose by 28%. This is in addition to some US$8.1 billion committed to financing economic infrastructure in developing countries (some 20% of all aid), most of which went to build the transport, energy and communications networks essential for international trade.

These public sector initiatives need to be enhanced by new partnerships, featuring recipient and donor governments, business and civil society. Only in this way can the complex issues of ownership and implementation of policies be resolved, so that the development benefits of trade-linked investment actually materialise and improve the lot of the poor. Public-private partnerships are part and parcel of the capacity-building process and OECD countries can contribute much to their successful creation and operation.

Trade capacity building is not a substitute for market access and developing countries understand this very well. The capacity gap, however, needs to be bridged so that poor countries can fully enjoy the benefits of an open, rules-based multilateral trade system.

References

OECD (2003), The Economic Impact of the Generalised System of Preferences, Trade Directorate.

©OECD Observer No 240/241, December 2003




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