[AS PREPARED FOR DELIVERY]
International Trade and Development
Ladies and Gentlemen,
It is both an honour and a pleasure for me to address you to present to you UNCTAD´s report on the latest trends and prospects in the international trading system. As the world economy is teetering on the brink of a second recession, we must remember the potential that trade can have in supporting the recovery. In this context, progress on the Doha round at the next WTO Ministerial Meeting in December would be a welcome boost for global cooperation. At the same, the global financial crisis and its consequences also serve as a reminder that it is no longer possible to discuss the different parts of the international economic system in isolation. We live in an interdependent world with all the potential benefits and downside risks that this brings.
Over the past five decades, trade has grown persistently faster than GDP and the exports-to-GDP ratio increased steadily for almost all countries and regions. However, the increase has been particularly rapid for developing countries over the past ten years, with the average ratio rising from 30 to 36 per cent since 2000 and with a concomitant rise in their share in world goods exports which now stands at 42 per cent. South-South exports now represent 53 per cent of developing countries´ exports, up from 43 per cent in 2000.
The shifting direction and dynamism of trade, particularly along its South-South axis, has been closely linked to the increased role of global production networks. Trade in intermediate goods has been dynamic and expanded from $2 trillion in 1995 to almost $7 trillion in 2008 to represent nearly 50 per cent of non-fuel merchandise trade. This trade encourages the specialization of different economies in different processing activities, leading to "trade in tasks". Participation in production networks has thus created new trading opportunities for a number of developing countries. This has been particularly marked in the Asian emerging economies where the high import content of exports has benefited other developing countries both inside and outside the region.
However, we must not lose sight of the fact that the benefits from the trade expansion have not been distributed equally across and within countries: While, 23 of a total of 153 developing countries experienced real annual export growth rates of more than 10 per cent between 2000 and 2010, close to one third of all developing countries (48 countries) actually experienced a contraction in their exports over the same period. This serves as a reminder that income convergence is not an automatic consequence of a more open global economy, and that polarization remains a challenge.
Recovery in 2010 and outlook for 2011
The global recovery of 2010 - where growth reached 3.9 percent and was particularly strong in developing countries which expanded by an average of 7.4 percent - was boosted by a rebound in world trade. World merchandise exports recorded their largest ever annual expansion of 14 per cent in volume terms in 2010 (although this was after a sharp decline in 2009), and developing countries export volume expanded by 16.7 per cent. The surge in exports was supported by vibrant demand in developing countries. In 2010, nearly 60 per cent of annual growth in import demand was attributable to developing countries and transition economies. By the second quarter of 2011, the value of world exports already exceeded the pre-crisis level.
Since then, however, the global recovery has stalled. UNCTAD´s Trade and Development Report 2011 forecasts that the pace of world output growth will decelerate this year to 3.1 per cent (from 3.9 per cent), and to just 1.8 per cent in developed countries (from 2.5 per cent). As a result, trade growth is also expected to slip. Already in the first quarter of 2011, the growth in the world merchandise export volume decelerated to 9.2 percent. The on-going debt crisis in Europe, widespread adoption of restrictive fiscal policies to promote consolidation combined with persistently high unemployment look set to constrain growth and raise the risk of another global recession. Failure to address these difficult, and interconnected challenges, will put further pressure on the trading system and threaten a serious backlash against globalization.
An agenda for development-led globalization
There is no doubt that international trade can greatly contribute to growth and development. However, the recent financial crisis has shown that harnessing the beneficial effects of global integration for sustained and inclusive growth requires deliberate policy efforts. There is a need to reshape globalization, so that its risks are minimized and its dividends are shared more equitably. This requires a policy agenda - at both the national and the international levels - that is focused clearly on inclusive development and designed to lift all boats. UNCTAD XIII scheduled in April next year in Doha, Qatar, will mobilize international efforts to realize such "development-centered globalization." The Secretary-General´s report on this agenda item (A/66/185) provides a discussion of some pertinent issues.
Let me therefore highlight a few of the key policy challenges in the trade area, as I see them.
First, while international trade is clearly key to strong and inclusive growth paths in most countries, the relationship between trade and development has shifted in the context of finance-driven globalization, particularly with respect to the investment-export nexus. Some developing economies have come under stress from financial markets, for example where excessive short-term capital inflows have created unwarranted appreciation of their currencies which could dampen trade prospects. Unruly capital flows can, through their impact on exchange rates and investment decisions, have a dramatic impact on trade flows and the problem is often amplified by policy incoherence across the various parts of the multilateral economic system. Greater coherence is an urgent priority.
Second, policy responses need to be tailored to country-specific circumstances. The imperative of global rebalancing has underscored the need for surplus countries to strive towards more balanced growth using both domestic and external demands, while deficit countries require greater savings and exports. Formulating policies that are best-fit to different national circumstances has thus become of primary policy concern.
Third, the crisis has also highlighted the case for a stronger role for the State and for an integrated approach to trade and development policies. Increasingly, trade problems require proactive and comprehensive policies and regulations which may go beyond what is traditionally regarded as trade policy. For example, as mentioned earlier, we have seen how dramatically and quickly financial market volatility can wipe out painstakingly acquired gains from trade through the impact on the exchange rate. Furthermore, productive capacities are pre-requisite for an economy to effectively benefit from trade and create jobs, which points to the case for new industrial policies. Effective institutions and regulations as well as strong employment practices are also important to ensure that domestic economies make the most from international trade.
Furthermore, greater attention needs to be paid to the employment-impact of trade. Transforming trade dynamism into greater income opportunities through job creation is a critical policy challenge in the pursuit of inclusive growth. The financial crisis has already left a large worldwide pool of unemployed. Pro-active and careful complementary policies are required to build local industries and create jobs. Indeed, the link between industrial policy and trade policy will likely become an increasingly important one in the coming years, and for countries at all levels of development. This link is likely to have a strong bearing on new issues, such as the green economy. Thus, the Rio+20 process should ensure that moving in this direction allows sufficient policy space to ensure the transition is effectively and fairly managed, and avoids "green protectionism".
Global supply chains also create their own distinct policy challenges for developing countries, in terms of integration, diversification and upgrading. There is considerable diversity in the economic activity that underlies the expansion in trade. Countries specialized in labour-intensive activities may be locked in low value-adding activities, so that domestic value retention remains limited, as does the contribution of net-exports to economic growth. These details can be overlooked when the focus is simply on the volume of exports.
Finally, many developing countries remain dependent on the rural economy. Agriculture accounts on average for more than 50 per cent of employment in developing countries but less than 10 per cent of their exports. Some (e.g. Brazil) have been able to diversify and upgrade their agricultural activities, output and exports to achieve faster growth. However, a large number of countries, many of them LDCs, have growing trade deficits in food products. There is need to redirect attention to the sector, including the links between trade and food security. This will require renewed efforts to tackle commodity price volatility (as discussed in another UNCTAD submission to the deliberations of the Second Committee) and reduce agricultural subsidies that continue to distort trade flows. It will also require large investment programmes, with sufficient international funding, tailored to local needs and conditions.
And these are only a few of the challenges facing policy-makers.
The potential of trade to generate growth and development, coupled with the current uncertainties overshadowing the global economy, make international cooperation all the more important but, paradoxically, also make such cooperative actions harder as governments are preoccupied with domestic policy considerations. The current setbacks in the WTO´s Doha Round negotiations are a clear manifestation of such a dilemma and risk eroding the relevance of the multilateral agenda in a rapidly evolving economic reality. Various observers have called for expeditiously addressing new "21st century" issues to preserve the MTS´ relevance (such as exchange rates, food and energy security and climate change) or investment, competition policy and natural resource issues. Others highlight the need to ensure that trade contributes to employment creation and productive capacities.
Despite the difficulties facing the Doha Round, the financial crisis has demonstrated the robustness of the multilateral system as an effective bulwark against protectionism. Monitoring conducted by WTO, UNCTAD and OECD shows that restrictive measures on trade and investment introduced since October 2008 until April 2011 have been kept to a minimum. However, we have recently witnessed new tensions arising in some novel areas of the trading system, such as in relation to exchange rates or carbon taxes. Such emerging tensions call more than ever for a coherence in the broader global economic governance.
There is a growing emphasis on regional trade agreements. These are intended to create a platform for regional supply chains by ensuring duty-free and NTB-free trading environment and deep regulatory integration. This month, the US Congress approved three free trade agreements with Korea, Colombia and Panama, that have been pending for four years. While these potentially provide benefits, they can also lead to fragmentation of the international trading system, where smaller and more vulnerable developing countries could be sidelined, and policy space available under the MTS can be constrained.
Within the global trading system, specific measures to support South-South cooperation and promote exports from LDCs have been strengthened. South-South trade integration and cooperation is becoming a viable platform to sustain dynamic South-South trade. The recent conclusion of the Sao Paulo Round of the GSTP negotiations is emblematic of such transformation. UNCTAD estimates welfare gains of $2.5 billion for 11 countries signing the Sao Paulo Round Protocol and $6 billion for 22 countries that participated in the round. Significant potential exist also for South-South regional integration. The continent-wide "developmental integration" in Africa, for instance, could generate welfare gains of $6.5 billion if trade liberalization is combined with regulatory and developmental integration supporting intra-regional trade.
Regardless of the outcome of the forthcoming WTO Ministerial meeting, the "special harvest" of LDC package will remain particularly important in helping LDCs to implement the Istanbul Plan of Action adopted at the Fourth UN LDC Conference in April this year, including the target of enabling, by 2020, a doubling of the share of LDCs in world exports. While this will require significant efforts, trade measures like DFQF market access or resolution of cotton issues could make a difference in favour of LDCs.
Cotton is a particularly sensitive issue for many countries. In our discussion of this issue in the report to the General Assembly we drew from the figures of the International Cotton Advisory Committee with respect to the size of cotton subsidies. These suggested that China had become the largest subsidizer of cotton production. However, China`s own figures, recently submitted to the WTO, suggest a much smaller figure and one well within the bounds of eligibility under the WTO rules. Moreover, while China`s own cotton production is fully consumed at home, it is also extending cooperation to African producers, in for example Benin and Zimbabwe, to help boost yields and product quality. UNCTAD sees the scaling up of such south-south cooperation as an important means to strengthening the export position of African cotton producers.
Trade is one part of an interdependent and cumulative development process. The trading system is not operating in a vacuum. As countries reorient their growth strategies in the light of new economic realities, the international trading system must be supportive of creating conditions necessary to achieve "development-centred globalization", that is, giving due space for an effective role for a developmental State to support a multiplicity of approaches to inclusive growth and development. Adequate policy space is thus important in enabling countries to adopt appropriate national polices and strategies in an integrated framework encompassing finance, employment, industrial and other economic policies.
The linkages between trade and multiple public policy goals underscores the case for giving greater attention to the broader implications of trade and trade liberalization for wider society. This will imply transforming the mercantilist logic of trade liberalization into a holistic developmental approach of cooperation based on collective interest and solidarity, to ensure the equitable sharing of gains and losses. It is also important to align existing rules and practices with longer-term development objectives such as building industrial capabilities, employment opportunities or food security, access to essential medicines and services, thereby contributing to MDGs.
In this context, a shift in the MTS is required. The approach to implementing and monitoring trade agreements and policies and addressing trade issues requires a more cooperative, rather than "litigation-based" framework. Some countries need support to strengthen their capacity to engage in the MTS and to use trade to promote growth and development.
The UN system can play a major role in supporting the MTS. The UN system already plays a major role in the provision of Aid for Trade and this role should be scaled-up in the years ahead. The UN can also help countries explore new approaches to international trade rule-making, particularly with new "21st century issues." For instance, it can support "soft rule making" where consensus building on new and emerging issues could be developed in a non-negotiating setting enjoying universal legitimacy, which could be later hardened through a more legalistic setting in the WTO or regional architectures. UNCTAD is ready to assist countries in engaging in such a new dialogue for reviving international cooperation on trade and development.