Ladies and Gentlemen:
I am extremely pleased and honoured to be with you here today for this important and unprecedented meeting on trade and poverty - two areas which have not often been considered jointly, but which together present us with fertile new ground for international deliberations on issues facing the LDCs.
UNCTAD is an organization whose main goal has been to assist the developing countries to identify mechanisms that will obtain the greatest amount of benefit from the multilateral trading system. Fighting inequality across countries and also within countries has been the life blood of the organization. First and foremost we are a trade organization, and we fully recognize that trade is but one mechanism to alleviate poverty. Our priority now is to ensure that trade policy at the multilateral, regional and national levels will be constructed so that it contributes to the Millennium Assembly goal of reducing the proportion of people living in extreme poverty by half between 1990 and 2015.
There is still a considerable stumbling block in front of us: the huge vacuum of knowledge that we have on the links between trade and poverty. Sure, we know the broad parameters of the link, but when faced with specific decisions on how to enhance the development and poverty impact of international trade it is difficult to identify specific policy tools at our disposal.
What is the link between trade and poverty?
First, and foremost what must be understood is that international trade is simply a tool with which to improve the prospects for development and eradicate poverty. We need a better understanding of how international trade policy can be constructed to alleviate poverty. In regard to trade and poverty, we know that the link is a complex one and depends upon whether or not trade will increase growth. But even when trade generates growth, we cannot be sure of all the mechanisms through which it will reduce poverty.
Professor Alan Winters states that he "does not know of any serious proposition in trade theory that suggests that there will not be losers". In other words, the benefits from international trade and trade liberalization may not have a positive effect on some groups of the world´s population. But how do we handle this distributional problem? Professor Winter´s response strikes me as a sensible one. What needs to be done is to continue to work on complementary policies that ensure the benefits continue and the negative impacts minimized, even if this means lowering the benefits to one group of society. LDCs in particular need assistance to develop trade policy initiatives in this manner.
There is no doubt that the LDCs and developing countries in general need a rules-based multilateral trading system. Indeed, they probably need it more than other countries, precisely because they are weak. No longer does anyone suggest that developing countries and LDCs in particular should set up a parallel rival trading system - a sort of utopian, alternative trading system. We know very well that there is no alternative to the current one, and we have to try to make the best of it. This does not mean, however, that LDCs and developing countries should passively accept the system as it is, in terms of the decision-making process and particularly in terms of the imbalances that have accumulated over the years.
The struggle against poverty today is taking place in the midst of a different environment from that of the 1960s, when UNCTAD held its first conference in 1964. The World Trade Organization membership is radically different from that of the GATT in the 1960s. Developing countries now dominate the WTO membership total of 140 countries. Developing country issues are also dominating the list of issues that are being negotiated under the auspices of the WTO. Unfortunately the mercantilist mentality of reciprocity and market access is still the rule of the day, but finally in the middle of all this we are hearing about important issues such as ´effective participation´, effective representation and constructive ways to develop a more of meaningful concept of ´differential and more favourable treatment´ in the multilateral trading system. This is a significant step forward.
In order for the changes in multilateral trading system to take place, LDCs need to be represented effectively. This means ensuring that their WTO accession processes are completed in an efficient and orderly manner. This means ensuring that these countries have well-trained staff that can represent their interests in Geneva, and most of all it means that they need assistance to make sure that their proposals are not only put forth, but also adopted.
In addressing those issues, allow me to focus on two aspects of the trade problems of these countries:
(A) MARKET ACCESS
- market access, where recent initiatives have been taken to improve the position of LDCs; and
- trade and development policies supportive of a competitive supply capacity, to enable LDCs to exploit the market opportunities provided.
Several initiatives have recently been taken by major industrial countries to provide poor countries with improved market access by amending their GSP schemes. Among them are the European Commission´s "Everything But Arms" initiative, which involved the remaining 918 tariff lines where protection was not zero; the United States´ African Growth and Opportunity Act (AGOA), which extends benefits to designated sub-Saharan countries, including 30 LDCs; and the Canadian Government´s extension of duty-free treatment to an additional 570 LDC products. These actions are a welcome step towards the objective of bound, duty-free and quota-free access for LDC exports. However, further efforts are needed to design a preferential system in favour of LDCs that takes account of past experience with previous trade preferences, which has often shown low rates of utilization of available tariff preferences. A preferential system should also take account of the various commitments to provide special and differential treatment in favour of LDCs and of the specific economic situation of these countries.
Five specific characteristics of existing autonomous preferential schemes can be cited as obstacles to the full utilization of benefits deriving from GSP or autonomous trade preferences: Lack of security of access; the incorporation of non-trade-related conditionalities; insufficient product coverage; excessively stringent rules of origin; and frustration of duty-free treatment through non-tariff measures.
- The lack of security of access arises from the autonomous character of the GSP and other preferential arrangements. GSP schemes are normally implemented within a limited timeframe and are subject to periodic renewals. The possibility of unilaterally introducing limitations or exclusions to products or beneficiary countries, the uncertain criteria for the triggering mechanisms for such limitations and the limited timeframe of application of preferences all contribute to their unpredictability. This factor has undoubtedly affected export-oriented FDI flows to LDCs that could have been expected in response to the preferential market access opportunities made available to them.
- The incorporation of non-trade-related conditionalities that have affected the eligibility of LDCs introduces an additional element of instability to trade preferences. For instance, failure to comply with requirements related to protection of foreign investments, labour standards, intellectual property rights and the environment may entail withdrawal or temporary suspension of the preferential treatment.
- Although comprehensive, the product coverage granted under the various preferential arrangements in favour of LDCs is not universal and there is considerable scope for further expansion of coverage on products of current and potential LDC interest. For instance, some agricultural and fishery products are not covered or are not granted duty-free treatment under the GSP scheme of Japan. In the case of the USA and Canada, the complete exclusion of textile and clothing products from the coverage has limited the trade value of their GSP schemes.
- Rules of origin with respect to the industrial capacity of LDCs are excessively stringent: Preferential rules of origin requirements often exceed the manufacturing capacity and industrial development of many LDCs and represent one of the main factors determining the current low utilization rate of available preferences. This problem is compounded by cumbersome ancillary requirements and documentary evidence linked to origin rules which further exacerbate the cost and difficulties of meeting rules of origin.
- Duty-free treatment is often frustrated through non-tariff measures, such as SPS regulations and trade remedies. LDCs are frequently unable to benefit from tariff preferences because of their inability to comply with the standards and regulations applied in the agricultural and industrial sector by developed countries. SPS measures in particular are considered one of the most important barriers to agricultural and food exports, as LDCs lack the resources necessary to exploit the opportunities offered by the provisions of the SPS Agreement. This reflects the relatively poor scientific and technical infrastructure in LDCs. Their capacity to fully participate in the relevant discussions in the SPS Committee should also be strengthened.
How can we address these obstacles to the LDCs´ full utilization of trade preferences?
To be an effective tool for enhancing the LDCs´ participation in international trade, any initiative aiming at improving market access for LDCs needs to fulfil the following basic conditions:
(B) INCREASING COMPETITIVENESS AND SUPPLY CAPACITY
- Ensure security of the preferential treatment granted, i.e. establishing a commitment that provides a contractual status to duty free preferences through the negotiation of a new legal instrument imparting stability and predictability to the new initiative by making the duty-free treatment contractual and by assuring the maximum of security for the duty free access so provided. Any temporary withdrawal of duty free treatment would be subject to the disciplines of the relevant WTO Agreements, which would be improved to provide meaningful S&D for LDCs.
- Duty-free treatment should be provided to all products; any temporary exceptions could provide for duty-free tariff quotas, which would be subject to an agreed phase-out programme.
- Rules of origin requirements should be realistic, to match the industrial capacity of LDCs; in order to ensure the effective and full utilization of preferences, these should be harmonized among donor countries and subject to simplified customs documentation and procedures. This should draw upon the work carried out by the World Customs Organization and UNCTAD in this field, and be supported by strengthened technical assistance provided by UNCTAD and other institutions aimed at maximizing the utilization of these preferences.
- To devise ways and means to ensure that the duty-free access is not frustrated by non-tariff measures: the existing S&D treatment provided under the WTO Agreements should be improved in this respect. The capacity of LDCs to comply with standards and regulations applicable in developed countries´ markets should be enhanced. In particular, LDCs´ capacity in the areas of risk assessment, laboratory analysis and recognition of their testing results and certificates should be strengthened. As regards trade remedies, current thresholds applicable under the Anti-Dumping, Subsidies and Safeguards Agreements should be raised for LDCs´ exports. In addition, LDCs should be exempted from the practice of cumulation, and the kind of subsidies typically used by them should be permitted.
The second set of issues I wish to address is how to increase the competitiveness and supply capacity of the LDCs. This must begin with a consideration of trade policy issues.
The reduction of poverty, promotion of employment, creation of wealth and overall economic, social and cultural development is a challenge facing all countries in the world today and in particular the 49 LDCs. It is widely recognized that there is a strong link between development and trade, the two being interrelated and mutually reinforcing. The crux is that international trade policies of LDCs in the 21st century must respond to their broad development objectives..
Thus, the starting point for an LDC in strengthening the contribution that international trade can make to the achievement of national development objectives is to design or redesign, adopt, disseminate and implement solid and well-articulated trade policies with attendant coherent strategies in bilateral, subregional, regional and multilateral trade negotiations and agreements. Trade policies must create linkages between key trade sectors - such as agriculture, manufacturing and services - and key policies - such as competition policy, industrial policy and so forth - so that an integrated approach to competitive trade capacity-building is supported by the policy framework..
Secondly, we must consider manufactures. With very few exceptions, most LDCs suffer from a weakness of industrial manufacturing. Manufacturing growth over the past two decades has been very low in most LDCs. The structure of manufacturing tends to be dominated by (low-level) processing of natural resources and simple consumer goods industries. There are few supply linkages between large and small enterprises. Capacity utilization is low. Technological efficiency is, by most accounts, relatively low in most industries, with little sign of technological dynamism or innovation. .
The revival of growth in a competitive setting has to be based on greater technology and investment inflows into LDCs and, more importantly, on greatly enhanced abilities of enterprises to absorb, adapt and improve upon imported technologies and investments. Strong government policies in trade, technology and investment can be a powerful engine of technological and industrial development, if they are placed in an export-oriented trade policy setting and coordinated with policies to boost learning with policies to supply the skills and information needed..
In the area of services, other developing countries have some encouraging success stories from which LDCs can learn. They can, for example, develop a strategy that actively supports the growth of export-oriented services and industries, including tourism, recreation and music. The development of services capacities in these sectors and others continues to be important.
Export development in LDCs also requires improvements in the infrastructure needed to export goods and services. This infrastructure includes market information, port and airport facilities, telecommunications, inland transports, reliable electricity supplies and other utilities, and acceleration and simplification of customs and administrative procedures, technical standards and sanitary measures, including environmental standards. The lack of such facilities or inadequate and inefficient supply affects the quality and competitiveness of exports by LDCs. Some LDCs are landlocked and others are insular, so for them the issues of transport costs and freight space availability assume major importance, especially in the case of high-value perishable exports, such as fish or cut-flowers. Exporters also need to improve their product quality and develop marketing strategies in order to penetrate export markets.
There are three issues in the area of commodities. First, the large majority of LDCs remain dependent on a few basic minerals or agricultural commodities in particular for their export earnings, with prices eroding continually. In addition, the share of developing countries in commodities trade has been declining, while the share of developed, industrial countries in the processed forms of these commodities has been mounting. Secondly, there is the question of how to improve the capture by developing countries of a growing share in the value-added chain. A third issue relates to the range of subjects that cover international market instruments and that have been used to correct some of the problems identified in commodities trade.
There are no simple answers. Some of the problems have to do with market structure and some have to do with problems of supply capability. All these commodity problems have to be fully and thoroughly analysed and discussed so that LDCs and the international community can design and implement policies and strategies that enhance commodity production and exports from LDCs within an overarching trade policy framework.
Agriculture and food security
The Decision on Measures Concerning Possible Negative Effects of the Reform Programme on LDCs and Net Food-Importing Developing Countries (NFIDCs), adopted at the conclusion of the Uruguay Round, has failed to deal substantively with the impacts of the agriculture reform process on LDCs and NFIDCs. That process affected not only the burden of their food import bills but also a wider spectrum of economic and development policies. Against this background, and in light of the launching of the WTO negotiations on agriculture, UNCTAD organized an expert meeting to outline challenges and concerns that had emerged for LDCs and NFIDCs during the Uruguay Round reform process in agriculture, and to contribute to the formulation of negotiating proposals by LDCs and NFIDCs in the ongoing WTO negotiations on agriculture, so as to ensure that the current negotiations would effectively address their concerns.
The agricultural reform process in LDCs and referred not only to that undertaken in the multilateral framework but also to the unilateral liberalization and deregulation in the agricultural sector initiated long before the conclusion of the Uruguay Round under structural adjustment programmes. The realities identified by experts were alarming. It was mainly the rural poor, accounting for as much as 70 per cent or more of the populations in developing countries, who were most affected by exposure to cheap, often subsidized imports after unilateral lowering of trade barriers. Those rural populations were also the first to be adversely affected by the autonomous freeze of domestic supports and subsidies which was locked in as multilateral commitments under the WTO Agreement on Agriculture. Meanwhile, their food import burden increased due to a combination of such factors as a steady fall in the availability of food aid, loss of local production to cheap imports, increase in import prices of certain basic foodstuffs due to the export subsidy reductions in supplier countries, and declining terms of trade of their exports. On the other hand, multilateral trade liberalization had not resulted in tangible benefits to agricultural exports, which accounted for a significant share in foreign exchange earnings of many LDCs and NFIDCs. Small island developing countries which are dependent on a few exported commodities are particularly vulnerable to natural disasters, but also to dumped or subsidized exports.
Based on those findings, the UNCTAD meeting suggested elements that should be reflected in the agenda of the ongoing WTO negotiations on agriculture. The meeting´s outcome helped form the basis for negotiating proposals submitted by several LDCs and NFIDCs. The challenge now is to ensure that the concerns addressed become an integral part of the negotiations. We need to present pragmatic ways to ensure that concrete discussions take place on issues of major concern to developing countries. In particular, we need to ensure that the continuation of the multilateral reform process in agriculture will facilitate the efforts of developing countries -- particularly those with specific supply capacity constraints, such as LDCs, NFIDCs, small island developing countries and landlocked developing countries -- to effectively address the food security need and the plight of poor farmers and rural poverty, while at the same time pursuing trade liberalization.
Regional and multilateral integration
The regional and subregional path is possibly the only practical path for developing countries to integrate into the world economy at a pace that will allow them to become competitive. "Seek ye first the market around you", as the saying goes. A major strategy option for the LDCs to follow in search of export development, including services, is thus regional integration. Most LDCs are members of one or another grouping, such as COMESA, SADC and UEMOA in Africa; CARICOM; and the Pacific Forum. The regional market enlarges the opportunities for local firms to secure more efficient production and specialization on a larger scale. New firms will start exporting from scratch, and new products may be exported due to the new market opening. For some exporters requiring an even wider market scale, the regional market may provide both a training ground and a learning process before they make the leap into highly competitive markets beyond their own region.
Within the framework of the Cotonou Agreement, African and Pacific LDCs are being faced with the prospects of participating in new trade talks to start in September 2002, or of benefiting from the EBA initiative. Eligible African LDCs may also participate in United States plans to form free trade agreements with them under the US Trade and Development Act of 2000.
At the multilateral level, LDCs have scope for policies to spur industrial development and exports by capitalizing on the Special and Differential Treatment provided to them under the WTO Agreements. The preparatory process for the Fourth WTO Ministerial Meeting would give them an opportunity to seek to improve such S&D treatment in view of the problems they have faced in implementing the agreements, taking advantage of the trade opportunities, and in ensuring that the future trade agenda provides a framework to address their market access. Support to LDCs´ participation in global trade should thus also include assistance in coping with the growing demand for human resources and for the institutional and legislative arrangements required to conduct the multilateral trade negotiations and implement their results.
UNCTAD, in cooperation with other multilateral institutions and donor agencies, is supporting the LDCs in evolving a positive agenda for multilateral trade negotiations, and for building competitive policies and trade capacities. The international community is confronted with an important challenge in the run-up to the Brussels conference. Can we make markets work for the poor? Can we ensure that the trading system will enable the LDCs to break out of the vicious circle of poverty and socio-economic regression?
Trade at LDC-III
Trade issues are being addressed in different forms at the LDC-III Conference. It is one of the seven commitments in the draft Programme of Action, and one whole day has been set aside to discuss trade issues.
The Conference should not be seen entirely as a sort of final product, an end in itself. What counts is the process leading up to Brussels, the commitments made there and the follow-up implementation of these commitments. It is being prepared in three core tracks. One of them is the National Programmes, where each LDC is being encouraged to mainstream trade issues in their battle against poverty. The second track is the one we are currently engaged in which is the preparation of the Global Programme of Action. The third track is the Conference itself and particularly the various events which will be taking place in Brussels and the events which have been set up to prepare for that Conference.
Right now the focus of all the agencies involved in LDC-III has been on the Global Programme of Action. Currently ten actions are listed under the section of trade related actions by LDCs. They range from strengthening efforts to integrate more open trade polices into development and poverty reduction to removing procedural and institutional bottlenecks that increase transaction costs. The general thrust of this section is to take advantage of the willingness of these countries to continue their fight against poverty. Development partners list 14 specific actions in the section on actions. These range from market access, WTO issues, technical assistance, standard setting, commodities and regional trading arrangements.
At the Conference itself there is a thematic session on trade. This includes the involvement of the European Commission in the presence of two of the commissioners (Messrs. Nielson and Lamy), together with the Minister of Trade of Tanzania on the one hand, and the World Trade Organization in conjunction with ourselves in UNCTAD on the other. I am of course proud to say that the WTO and my institution are taking the lead in this session.
Throughout the entire preparatatory process I have focused exclusively on deliverables, but not in the context of negotiating issues that are the prerogative of the WTO members. However, there is no reason at all why LDC-III cannot be a platform for the WTO Ministerial Meeting. This event should not be viewed simply as a conference. It is an opportunity for the international community to catalyse its efforts to help the LDCs. The conference needs to produce tangible and qualitative results and an agreement on monitoring implementation and progress. Therefore, let me be clear that LDC-III is different from the previous two conferences, in that UNCTAD will be striving hard to overcome the credibility gap with the concept of ´deliverables´ and effective implementation. The latter will involve not only the secretariats of various international organizations but also their respective governing bodies. UNCTAD is ready to continue to serve as the convenor of these shared efforts among equal partners. In this regard, there are four key principles that form the framework for trade deliverables:
- Fast-track accession for LDCs;
- An organic link between actions required by LDCs and their needs, including technical assistance;
- More effective and substantial special and differential treatment for LDCs in the WTO multilateral trade agreements; and
- A significant increase in the de minimis provisions for domestic support in the Agreement on Agriculture.
In conclusion, let me take this opportunity to thank Secretary of State for Development Claire Short for organizing this meeting in the context of the Third United Nations Conference on the Least Developed Countries. The issues we are discussing today are all important ones, and I have confined my comments to some specific trade issues. However, let me be clear that trade policy is only one tool available for LDCs and the international community. It cannot and should not be used independently of the many other social and economic policies that are so crucial to the fight for development. The issues I have outlined today are some of the ones that I feel are the more relevant ones for trade. There are others, and by the end of the day we should consolidate them to make sure they form part of the discussions in Brussels and, more importantly, are a fundamental component of the deliverables.