Trade and investment in LDCs: opportunities and constraints in the multilateral trading system

1. The Trade and Development Board carried out its eighth annual review of progress in the implementation of the Programme of Action for the Least Developed Countries (LDCs) for the 1990s, with the Least Developed Countries 1998 Report as the background document. The Board commended the secretariat for the high quality of the Report and its comprehensive analysis of the economic performance of LDCs and the opportunities and constraints facing LDCs in attempts to enhance their participation in the multilateral trading system. The main message of the Report, which is that LDCs should be fully integrated in the world trading system, needs to be brought out with greater clarity. However, it was recognized that the particular circumstances of LDCs continue to warrant special and differential treatment under the Uruguay Round agreements. Nonetheless, it is acknowledged that the long-term challenge for LDCs is to improve their competitiveness in international markets.
2. The Board was encouraged by the fact that the LDCs as a group had been able, in 1997, to sustain their recent economic recovery. Their improved performance was due to a combination of factors, both domestic and external. The Board was nevertheless concerned by the considerable uncertainty over the short-term prospects for LDCs; their fragile economies are particularly vulnerable to exogenous shocks such as the Asian financial crisis, declining commodity prices and natural calamities. The risk of policy reversals and continued civil strife also raises questions about the sustainability of the recent economic recovery in some LDCs. Furthermore, even if the current recovery could be sustained in the coming years, it would not by itself contain the continued marginalization of LDCs in world trade or enhance their necessary integration into the global trading system, or make much headway in alleviating poverty.
3. The Board noted that the improved economic performance of LDCs in recent years was mainly attributable to their own sound macroeconomic policy reforms, undertaken under most difficult domestic and external conditions. They were encouraged to continue their reform efforts, with the active support of the international community, in a spirit of partnership and shared responsibility, to create a conducive environment for sustained economic growth and development. They were also encouraged to make efforts to create conditions for improved domestic and foreign direct investment and diversification of their exports.
4. The Board considered the availability of adequate external financial resources to be of critical importance in sustaining growth and development in LDCs. The significant decline in official development assistance (ODA) flows to LDCs in 1996 was recognized with concern. Donor countries were called upon to increase their levels of financial assistance in line with established United Nations targets. The recent initiatives by some donor countries and the continued steadfast implementation of aid programmes in favour of LDCs by a number of other donors need to be supplemented by further efforts on the part of all LDC development partners with a view to meeting the commitments undertaken in the Programme of Action. That is particularly important in view of the inability of the LDCs to attract significant foreign direct investment (FDI) flows.
5. Despite the significant progress made by LDCs in implementing broadly-based economic reform programmes, most of them have not succeeded in attracting long-term investment. Although a wide range of investment opportunities exists in LDCs, particularly in the agricultural, tourism and mining sectors, LDCs still face obstacles in trying to attract FDI and other forms of private capital. That situation serves to underscore the critical importance of the role of official agencies (multilateral and bilateral development finance institutions and aid agencies) in helping to promote private flows to LDCs. LDCs need technical and financial assistance to improve their institutional and physical infrastructures in order to enhance their ability to attract more foreign equity investment flows and draw benefits therefrom.
6. While the Board welcomed major debt relief initiatives, it considered that further efforts are needed to alleviate the external debt situation of LDCs, which continues to be a source of grave concern. Without a sustained and decisive reduction in their external debt and debt service obligations, the growth prospects of LDCs and their ability to attract FDI will remain limited. The Board also welcomed the Heavily Indebted Poor Countries (HIPCs) initiative, but noted that its implementation has so far been limited. Two years after its launch, only one LDC has benefited from the full-fledged relief provided by the initiative. The extension to the year 2000 of the initial two-year deadline for countries to be considered under the HIPC initiative, so as to allow more countries to meet the entry requirements, was welcomed. However, there is a need to provide an effective and early exit from the debt overhang problem in support of debtor policy reform efforts and to secure the necessary resources for the full and expeditious implementation of the initiative. The eligibility criteria should be flexible enough to take into account different debt situations and to include all LDCs which are truly in need of debt reduction and which are undertaking the necessary reforms. Donor countries might wish to give due consideration to the proposal made by the Secretary-General of the United Nations that all remaining official bilateral debt owed by the poorest HIPCs should be converted into grants.
7. The Board stressed the importance of supporting LDCs in their efforts to reverse their current marginalization in world trade and to become integrated into the world economy and international trading system. An expeditious accession process for LDCs which are not members of WTO is an integral part of those efforts, and UNCTAD should continue its efforts to assist LDCs in meeting their terms of accession. LDCs should be enabled to achieve accession on terms consistent with their LDC status. The challenge for the accession negotiations to be held in WTO is to combine, within a reasonable time-frame, the necessary rigorous observance of multilateral disciplines with a degree of flexibility and understanding for the difficulties and constraints faced by LDCs.
8. The full and effective implementation of the Marrakesh Ministerial Decision in favour of LDCs and the special and differential measures in favour of LDCs contained in the Uruguay Round agreements, further enhancement of market access for LDCs´ exports and support for their efforts at capacity-building are essential if LDCs are to become integrated in the world economy. While moves by several developed and developing countries to increase market access for LDCs were welcomed, there remains substantial scope for further market access for agricultural and industrial products of export interest to LDCs. The effective implementation of the WTO Action Plan for LDCs, adopted at the first WTO Ministerial Conference, and the decisions of the High-level Meeting on Integrated Initiatives for Least Developed Countries´ Trade Development would help to address the residual market access problems faced by LDCs.
9. Supply-side constraints are at the root of LDCs´ weak participation in international trade. The international community should help LDCs to enhance their competitiveness through commodity diversification, improvement of their trade infrastructure and trade-supporting services, and human resource development. Moreover, the LDCs themselves have a responsibility, in the context of their macroeconomic policy, to overcome the problems of supply-side constraints, for example the issues of high tariffs and other restrictions.
10. LDCs should also receive assistance to enable them to take an active part in negotiations which are part of the built-in agenda and take an active interest in the current debate on new issues. UNCTAD´s role in that regard was emphasized. It was also underscored that, in the process of the negotiations on the built-in agenda, the special needs of LDCs should be taken into account.
11. The Board expressed concern at the pace of implementation of the Integrated Framework for Trade-Related Technical Assistance, including for Human and Institutional Capacity-Building, to Support Least Developed Countries in Their Trade and Trade-Related Activities. The need to continue to enhance and improve coordination and coherence among agencies involved in the implementation of the Integrated Framework was emphasized.
12. Civil society has an increasingly important role to play in enhancing socio-economic development. The international community and, in particular, member States need to take effective measures to promote private enterprise and boost entrepreneurial activities in LDCs. The creation by LDCs of a favourable institutional and legal framework is an indispensable prerequisite in achieving that objective. The role of women and non-governmental organizations (NGOs) needs to be re-emphasized, and efforts should be undertaken to integrate all civil society partners into the LDC development process. International development partners, especially NGOs, could play a vital role in that regard by entering into meaningful relationships with national NGOs and the private sector in LDCs.

900^th plenary meeting
23 October 1998