The European Union has the lowest protection against LDC exports of all Quad members.
The 49 countries classified by the United Nations as the world´s least developed have been struggling to find ways to make international trade a more pragmatic tool for development. In an effort to improve exporting conditions for them, a number of countries have granted non-reciprocal market access. The latest such initiative is the Everything But Arms (EBA) proposal of the European Union, which provides duty- and quota-free market access for all products originating in LDCs, with the exception of arms. A new UNCTAD study entitled Duty- and Quota-Free Market Access for LDCs: An Analysis of Quad Initiatives(1) examines the economic effects of this proposal and the impact of its possible adoption by the three other members of the Quad . Canada, Japan and the United States. The study was released today on the occasion of the Third United Nations Conference on Least Developed Countries, which is being held in Brussels from 14 to 20 May to combat economic isolation and poverty in the world´s poorest countries.
Approximately 50% of LDC exports face a tariff barrier in Canada, Japan and the United States.
As of 1999, 37% of LDC exports were to the European Union, 27% to the United States, 4% to Japan and 1% to Canada. Collectively these four markets account for 69% of total LDC exports (figure 1). However, within these markets there is considerable variance in the level of market access offered to LDCs. Prior to the EBA proposal, The European Union offered the best market access, with less than 3% of LDCs exports facing a tariff barrier. Furthermore, this protection was only in agricultural products. For the other three Quad members, however, this figure rises to approximately 50% of the total value of exports. The bias of protection against LDC exports is reflected in the composition of tariff lines that hinder them. In Canada, Japan, the US, only 18%, 12% and 17% respectively, of tariff lines affect LDC exports. The protection is therefore concentrated in only a few sectors of key importance to LDCs (table 1).
Three complementary approaches were used in the UNCTAD study to analyse the costs and benefits of the EBA proposal and its extension to other Quad members. These were a computable general equilibrium approach, a disaggregated product line approach and case studies of Bangladesh and Mauritius.
All of the LDCs examined will gain from the EBA initiative.
The impact of the removal of the remaining level of protection in the EU, except for arms, will be a small increase in exports from LDCs. The largest increase in percentage terms will be from Malawi, Tanzania and Zambia (figure 2). Despite the fact that Bangladesh is the largest LDC exporter, the predicted change in its volume of exports will be small. This is due in large part to its strength as an exporter of textiles and apparel products, products already liberalized before the EBA initiative.
Preferential access to major markets for the LDCs will have small negative impacts on some developing countries.
The estimated impact on the EU from extending its preference scheme to cover all products except arms is negligible in every respect. The only sector of concern is sugar, but this impact has been qualified by the extended transition period. Negligible impacts are also expected for the rest of the world.
If Canada, Japan and the United States follow the lead of the EU, LDC exports will increase by a moderate amount. The largest single source of this gain will be from Bangladesh, although as a region sub-Saharan Africa stands to gain the most. The reason is the high level of protection applied by these three Quad members to the textile and apparel industry, where Bangladesh has become internationally competitive over the past decade.
The benefits to LDCs will be much greater if Japan, Canada and the United States follow the lead of the European Union.
The study also highlights the resource allocation effects arising from the discriminatory nature of country and product coverage of these preferential schemes. LDCs have been focusing their industrial policies on enhancing sectors with greater market access in developed countries, as opposed to their comparative advantage. Unless market access is uniform and liberal, preference schemes can require significant structural adjustment, including employment losses in sectors that were insulated from competition due to the preference margin. Therefore, a uniform level of preference, such as that offered by the EU, is more beneficial to LDCs than a piecemeal preference policy, such as that currently offered by the other Quad members.
Removing border barriers to trade on its own is not enough. Other complementary policies are needed to make this market access effective.
The estimates in this study are the most optimistic outcomes given the methodology employed. Based on past experience with non-reciprocal programmes, and as confirmed by the case studies, there is considerable evidence that LDCs do not fully utilize all available preferences. Supply capacity is a significant problem, but donor countries can undertake initiatives to assist, such as streamlining and simplifying rules of origin procedures, assisting LDC governments with mechanisms that will ensure the proper certificates of origin are issued, and above all ensuring that the market access is not frustrated by other impediments to trade.
These initiatives are all the more important due to the continual decline in the margin of preference that the LDCs enjoy. As donor countries continue their liberalization trend to harness globalization, their domestic markets will become increasingly competitive. Domestic producers in the LDCs will also have to rise to the challenge.
The struggle of the LDCs to improve their prospects for development has been a difficult one. International trade represents only one component of the fight against poverty and for development. It should not be used in isolation of a range of other polices that can be implemented at the national, regional and international level. Nevertheless, as this study has shown conclusively, there is now an opportunity for the developed countries, especially Canada, Japan and the United States, to make a significant contribution to enhancing the role of trade in the development process of the LDCs.
