Mr. Creon Butler, Deputy High Commissioner, United Kingdom High Commission,
Mr. G.K. Pillai, Commerce Secretary, Government of India,
Professor Kausik Basu, Cornell University
Mr. Abhijit Das, OIC of the UNCTAD India Project
Distinguished National and International Participants
Ladies and Gentlemen:
It gives me great pleasure to address this Conference on "how the poor are affected by trade", organized by UNCTAD, Ministry of Commerce and Industry, Government of India, and DFID Project on "Strategies and Preparedness for Trade and Globalisation in India." This Project is a flagship project of UNCTAD. We attach the highest importance to it because of the impact it has made and can make on trade and inclusive development in India, as well as serve as a road model to be replicated for other developing countries. We are very grateful to DFID for their support, and Ministry of Commerce and Industry for its confidence in the support provided by UNCTAD. We hope to continue this positive partnership for many more years.
Rationale and scope of the Conference:
This Conference is a further example of the UNCTAD-DFID-Government of India partnership to help identify public policies and international solidarity measures that would strengthen the contribution of international trade in reducing poverty in India as well as in other developing countries. It attempts to focus more specifically on the trade and poverty debate, and whether trade, both exports and imports, as a commercially oriented activity focused on profit making can be reconciled with poverty reduction which is a social goal. It does so by taking the approach of asking how are the poor affected by trade and trade liberalisation, rather then how does trade and trade liberalisation affect the poor. This approach can help to identify policies for self sustaining employment generation, income growth and poverty reduction at the economy wide, sectoral and household levels. Our deliberations will draw upon evidence-based research and practical, ground-level realities in India and in other developing countries.
Accra Accord of UNCTAD and poverty reduction
UNCTAD´s vocation is to assure that there are development gains from participating in global trade, and that policy measures of member States are geared towards ensuring that the gains accrue to the poor. This mission has been strengthened by the 12th UNCTAD Conference, last April, in Accra Ghana with the adoption of the Accra Accord. In this accord, our member States reiterated, inter alia, that the pro-development impact of trade liberalization and globalization is not a given, but needs to be supported by political decisions and actions that are proactively pro-poor. This fact has been visibly enhanced by the global crises faced today, and which must be tackled globally, with a focus on poverty reduction.
At UNCTAD´s Trade and Development Board last September, a high-level segment was held on trade and the United Nations Millennium Development Goals. It was emphasized that a key condition is building of productive capacity and trade generated or contributing to that capacity, in agriculture, manufacturing and in services. Unless this exists, countries cannot benefit from trade. This must bring about a virtuous circle of productive capacity, competitiveness, market access, investment, technological development and infrastructure building, both trade-related as well as physical and social related.
Implication of the triple crisis of finance, food and fuel
Ladies and Gentlemen:
Our deliberations today cannot ignore the dire financial and economic situation prevailing presently. The global economy is in the throes of a severe financial crisis of global reach which is threatening to hamper economic growth and prospects for promoting development in the months and maybe, years ahead. We in UNCTAD have termed this financial crisis "the crisis of a century." The double jeopardy of the food and fuel crises that developing countries have faced this year, has been further aggravated by the shocks of the financial crisis.
For example, the food and fuel crisis have exacerbated hunger and energy poverty. The financial crisis is causing reduced access to credit by SMEs and the poor in developing countries, and in turn impacts on productivity and export capacity. High energy costs and energy efficiency and environmental concerns also affect the competitiveness of manufactures exports of developing countries. A slow down in economic growth of major markets, from the financial crisis, will reduce global demand for exports of developing countries, including in poverty-sensitive goods and services, such as tourism sector. The preoccupation with bailouts and re-building the financial sectors in OECD countries could lead to diverting FDI away from developing countries, and stagnating or reducing ODA. Protectionism against developing country exports could rise and investment to developing countries could decline as jobs and income insecurity grows in developed countries. These concerns have risen and need to be overcome.
UNCTAD has been warning through its analyses, including in its Trade and Development Reports, about the impending financial crisis, the strong impact of financial and exchange rates policies on trade, and had thus advocated a rules-based overhaul of global governance system of finance and monetary cooperation. Our latest Policy Brief on the financial crisis notes that a considerable degree of public intervention is required to avoid damages to the financial system and real economy, and that it is imperative to strengthen regulation and increase the transparency of financial instruments and institutions.
The threats to development and to the ability of trade to contribute to development posed by these emerging challenges have raised fundamental questions about existing economic and development models, and international governance systems. It underlines the need for greater and better coherence between aid, trade, financial and exchange policies, in support of development and poverty eradication. It has necessitated a re-invention of the role by Governments at national and international levels. The concept of an ´enabling state´ or ´developmental state´, which UNCTAD has been proposing and its member States have endorsed through the Accra Accord, has become very pertinent. This involves the role of Government in proactively supporting, enabling and fostering development, and using policy space gainfully in support of pro-poor development, without relapsing into an intervening State. Enhanced intergovernmental cooperation is also needed to foster an international enabling environment characterised by better global economic governance and coherence, as well as global solidarity measures.
In this regard, the proactive policies by Governments needed include:
increased and effective market access for developing countries´ exports of commodities, manufactures and services, fostering an open, predictable, transparent and non-discriminatory as well as equitable trading system;
increased participation and diversification into new and dynamic sectors of international trade to bolster their productive capacities;
enabling developing countries to participate in standards-making and to overcome standards-related barriers to trade and other non-tariff barriers;
building efficient and enabling services sectors in developing countries and promoting universal access;
strengthening migration´s contribution to development;
promoting agricultural productivity and food security;
ensuring sustainable energy security for development;
- strengthening regulatory mechanisms, including competition policies, to promote efficient national, regional and international markets and control anti-competitive practices;
- ODA targeted at building productive sectors and trade-related infrastructure, including through aid for trade and aid for development;
In terms of diversifying the export basket and export/import markets, there is also need to have an enlightened approach towards alternative solutions through South-South trade, FDI and ODA, as well as transfer of technology.
Key results of India project study
Ladies and Gentlemen:
UNCTAD, through its India project and in collaboration with several experts, has undertaken a study on trade liberalisation and poverty reduction in India, entitled "How the poor are affected by international trade in India: An empirical approach". This study, which is available for this Conference, is an in-depth, comprehensive and empirically based analysis of the ways in which the poor have been affected by trade in different sectors of the economy. It is likely to be the most comprehensive analysis for enhancing the understanding of trade-poverty linkage in the Indian context. UNCTAD views this study as an important case study of its larger normative work on trade and poverty. It is our hope that the analysis presented here may serve as a basis to undertake further work on this issue in the future.
Findings of the study show that:
some trade sectors are more sensitive to poverty and gender, then others;
tradeable goods and services can contribute to poverty reduction and positive developmental impact; and
- both direct and in-direct spill-over benefits can be realised from liberalization.
The study, in brief, finds that there have been gains to the poor from trade in goods and in services in terms of increased employment opportunities and income. The study finds that a rise in exports in the period 2003-04 to 2006-07 increased employment by 26 million persons. It also estimates that the total income generated by increase in exports in the period 2003-04 to 2006-07 has been of USD 55 billion.
However, total income generated for the people in the lowest income group (i.e., people in abject poverty and those below poverty line) is only around 1.6% of the total income generated. The poor have benefited from exports growth but the gains have been unevenly distributed with 70% of the income generated going to the top two income groups.
The unorganised manufacturing sector, where the poor are concentrated, has experienced a rise in its employment and wage rate in part due to international trade. In organised manufacturing sector it is found that though trade has increased the wage rate of unskilled labour, it has also widened the wage inequality between skilled and unskilled labour.
Another important finding of the study has been that trade growth has led to increase in gender employment, which has also reduced the gender employment gap.
This shows that expanding trade can indeed reduce poverty in India, and empower the women. Hence efforts are required to ensure continued trade growth. However, expanding trade alone is not sufficient to ensure that poverty is significantly reduced. Complementary policies would be necessary to enhance the poverty reducing effects of trade, especially measures that encourage skill formation of workers and provide for a greater share of income gains to accrue to the poor. This is imperative.
While this study brings out the uniqueness of the Indian situation, many of its findings may apply equally to other developing countries. The studies would thus be of interest to a wide audience seeking to draw lessons from the Indian experience. In particular, it will be of interest to policy makers, stakeholders and other poverty analysts, seeking insights on the impact of trade and trade liberalisation on poverty. It is hoped that such insights will assist policy makers at national, regional and international levels to ensure that pro-poor concerns are effectively addressed in the international trading system and trade negotiations. The deliberations of this Conference will help in this regard.
Ladies and Gentlemen:
I wish us all a successful conference and in our collective task in making trade work for the poor.