Trade and Development Board, seventieth session: Item 8: Evolution of the international trading system and its trends from a development perspective
22 June 2023
Dear Xiangchen Zhang, Deputy Director-General of the World Trade Organization,
Ladies and gentlemen
Trade is a powerful engine for economic growth across the world. But in many developing countries that growth has not translated into the expected sustainable development and poverty reduction. And the situation has worsened with the COVID-19 pandemic, the climate crisis, the war in Ukraine and other geopolitical tensions.
The bottom line is that multilateralism has fallen short of what it could or should deliver:
Commodity dependency remains a stark reality for many developing countries. The multilateral trading system has so far not created the necessary drive for poorer countries to diversify their economies.
Funding for climate action is largely insufficient, particularly in the global South.
The multilateral trading system cannot operate at its potential.
All this is of much concern because inclusion and equality, today and tomorrow, are at stake.
We need a rules-based multilateral trading system as it remains the best and most equitable option for trade.
This is especially the case for small and low-income countries for whom the multilateral trading system is a safety net, offering protection against economic heavyweights.
Most least developed countries and low-income countries are also often left out of trade agreements involving major economies. For instance, in 2022, the average number of regional trade agreements concluded by LDCs was 2.4, while it was 9.6 for upper-middle-income countries, and 10.1 for high-income countries.
As a consequence, low-income countries often have no other access to major markets than at the Most Favoured Nation (MFN) rate or through programmes of the Generalized System of Preferences.
This is why promoting a universal, rules-based, open, non-discriminatory, and equitable multilateral trading system under the WTO is a specific target (17.10) in the SDG agenda. And this target is at the core of our work in UNCTAD. In fact, within the UN, we are responsible for pursuing that target.
A constant challenge of the multilateral trading system has been how to make trade work for all. This has been a perennial challenge. A reform is certainly needed. And we believe this process should be mindful of the following:
First, the multilateral trading system needs to be better aligned with the Sustainable Development Goals and other global development goals, so that trade can act as a means of implementation for delivery on the goals.
Second, reform efforts should be conducted with the participation of all countries, reflecting the diverse and changing development priorities and sensitivities.
Third, the multilateral trading system must be fit for purpose: Facilitate industrialization, structural transformation and economic diversification. Many developing countries are still in the process of industrialization. While over the last 25 years there was some degree of convergence, the export diversification gap between low-income countries and upper-middle and high-income countries remains wide.
Fourth, the focus of the multilateral trading system should shift from promoting narrow commercial gains to fostering economy-wide sustainable and inclusive development. This requires adequate “policy space” for developing countries to foster innovative and proactive policy interventions in such areas as subsidies, investment, technology transfer and dissemination.
And fifth, the system needs to adapt to the global challenges of today, most notably, digitalization and climate change. These challenges were less present when the current multilateral trade rules were originally adopted.
Ladies and gentlemen,
These are the two challenges I would like to focus on today and that are addressed in the Conference Room paper prepared for this session.
How can the multilateral trading system and trade facilitate green industrialization and a digital transformation with development gains?
First, on climate.
The multilateral trading system and trade policy at all levels can help accelerate the energy transition needed to deal with climate change. They can contribute to improving market access, supporting technology transfer and diffusion of technologies, facilitating trade, harmonizing regulations, phasing out inefficient fossil fuel subsidies and ensuring widespread production and access to environmental goods and services.
According to the International Renewable Energy Agency (IRENA), for the energy transition, 50% of the reduction of emissions could be achieved through enhanced efficiency and deployment of renewables. Thus, access to technologies, including through trade, is key.
Trade can provide new market opportunities for exports of renewable energy from developing countries.
But trade policies need to be better aligned to the principle of common but differentiated responsibility, and domestic production capacity in developing countries.
And there is room to lower tariffs on renewable energy products.
The average MFN tariffs applied for renewable energy products by developing countries are about 4.5% and above 6% for LDCs. Removing these tariffs and addressing NTMs in these goods within the Global System of Trade Preferences among Developing Countries framework could allow a faster renewable energy transition and an expansion of renewable energy-related services.
Now, let me move to the other big topic: digital.
Digitalization affects not only how products are traded but also the nature of what is traded.
The multilateral trading system addresses the issue through several discussions and agreements, such as on e-commerce and digital trade, government procurement, information technology, services, intellectual property and trade facilitation to mention a few.
Some of these issues have proven more controversial than others. Nevertheless, there may be an expectation to deliver results in this area in the next WTO ministerial conference.
An important question is how the needs of developing countries can be best accounted for in these areas and processes. We think there are five important points to consider:
- Reinvigorating the discussions in the WTO Work Programme on Electronic Commerce agreed at MC12. This will allow for continued sharing of experiences and learning. While its general mandate is to consider all trade issues relating to global e-commerce, it is useful to pursue the focus on the development dimension.
- Giving due consideration to the moratorium on customs duties on electronic transmissions at MC13. At the last ministerial conference, Ministers agreed to intensify discussions in this area and hold periodic reviews on issues pertaining to scope, definition, and impact of the moratorium.
- Maintaining the openness of the Joint Statement Initiative to any WTO Members wishing to participate (as participant or observer), so development issues are fully reflected. According to the co-convenors, progress on the Initiative has been achieved on a range of issues, while others have been more difficult to reach consensus on.
- Acknowledging that many developing-country governments are facing significant challenges when responding to digitalization. They need time to develop their capacity to comprehend the wide-ranging impacts arising from digital disruptions. This is why they need support from UNCTAD and other development partners to strengthen their readiness to harness digital trade. The eTrade for all initiative, can play an important role in this context.
- Finding a balance between promoting a smoother flow of data and respecting individual countries’ rights to regulate and pursue legitimate public objectives. The issue of data is particularly difficult because data is considered a key economic and strategic resource and there are several sensitive regulatory issues.
Overcoming digital, data and innovation divides requires a broader perspective than just trade; one that is anchored in universal human rights and that enables the attainment of the Sustainable Development Goals. That is why the UN Secretary-General proposed to develop a Global Digital Compact that would set out principles, objectives, and actions to advance an open, free, secure and human-centered digital future.
We need a development-oriented trading system more than ever. I am thus encouraged that the trade item returned to the agenda of the TDB.
I would like to once more welcome Xiangchen Zhang, Deputy Director-General of the WTO. I am sure that both our institutions see the need for trade contributing better to the Sustainable Development Goals, and we also agree to join efforts to that end. I look forward to hearing Mr. Zhang’s perspectives on the future of the multilateral trading system and areas for cooperation so that the expertise and platforms of both institutions contribute to future trade being more resilient, inclusive, and sustainable.
This session offers us the opportunity to exchange with you – dear delegates - about your vision of how the future multilateral trading system can better support your development objectives.
I look forward to hearing your perspectives and thank you for your attention.