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flying albatross International Conference on Financing for Development, Monterrey, Mexico, 18-22 March 2002 United Nations
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Media Information : Media Kit-English

Media Kit: Trading poverty for prosperity

Over the last half of the twentieth century, international policy has focused on reducing tariffs and other barriers to trade - largely driven by the priorities of the developed countries. In recent years, and especially since Doha, attention is turning to the still-high barriers to the exports of many developing countries. Such barriers are estimated to cost the developing countries $130 billion a year.

The second half of the twentieth century saw a global trade boom. The volume of world trade increased at an annual average rate of 6.2 percent per year between 1950 and 2000, outpacing the 3.8 percent per annum growth of world output. Two factors playing big roles have been trade liberalization and lower costs of transportation and communication.

As a result of eight rounds of multilateral trade negotiations since World War II, culminating in the founding of the World Trade Organization (WTO), average tariff levels have plummeted from about 40 percent to under 6 percent in the 1990s. On average, developing countries that lowered tariffs sharply in the 1980s grew more quickly in the 1990s than countries that did not lower them. The commitment to increased liberalization is now almost universal. In Doha, Qatar, in November of 2001, the 142 members of the WTO agreed on negotiating a range of key issues of special interest to developing countries, such as reduction of subsidies for agricultural products and improving market access for non-agricultural products by reducing or eliminating tariffs and the abuse of anti-dumping laws.

Speaking to the January preparatory meeting for the International Conference on Financing for Development, UN Secretary-General Kofi Annan urged that the Monterrey meeting should build on the momentum achieved in Doha, with its promise of a new agenda of trade negotiations with a development focus.

Overcoming primary commodity dependency

Most developing countries still export mostly primary commodities: foodstuffs, fuels and minerals. Moreover, more than 50 developing countries - including two-thirds of the 22 countries in the Heavily Indebted Poor Countries Initiative (described in the press kit backgrounder on debt) - still depend on three or fewer commodities for more than half of their export earnings.

Excessive dependence on primary commodities makes many developing countries highly vulnerable to short-term price fluctuations. Over the long term, they face the problem of prices of their exports that are declining relative to the prices of the mainly manufactured goods that they import.

It is clear that developing countries need to diversify their exports, especially by shifting to exports of manufactured goods and services. Many developing countries, especially in Asia, have in fact done so. According to a World Bank study, some 24 developing countries, with 3 billion people, have doubled their ratio of trade to income in the past two decades. Manufactured exports (textiles, light machinery and technical products) are now a principal component of trade in several, indicating that the transfer from trading in commodities to manufactures is indeed possible, as is diversifying among groups of commodities.

The ability as well as the opportunity to expand exports is critical to long-run poverty reduction. So too is the capacity to implement trade policy commitments and to participate effectively in international policy development, which for many developing countries warrants additional technical assistance.

Market access

Tariffs and import restrictions in many developed economies tend to be comparatively high for agricultural and other labour-intensive goods that many developing countries can export competitively. In some product categories, not only do developing country exporters have to be efficient, but they have to compete against developed country producers that enjoy high levels of subsidies, especially farmers.

Agricultural subsidies in the developed and relatively economically advanced member countries of the Organization for Economic Cooperation and Development amounted to $361 billion in 1999 - more than the entire gross domestic product of Sub-Saharan Africa. Moreover, many non-agricultural exports from developing countries are limited by particularly high tariffs or by tariffs that escalate with the degree of processing. This in effect discourages developing countries from trying to supply these higher-value products. Even if developing countries succeed in penetrating developed country markets, they sometimes find themselves unjustly accused of "dumping" (selling below fair-market cost), and become the target of "anti-dumping" penalties.

The expansion of market access for developing country exports needs to be complemented by a concerted effort to ensure that all countries, especially those that face special challenges, are in a position to benefit from liberalization. One recent study estimated that removing all trade barriers could bring a potential gain to developing countries of about $130 billion a year (at current prices and covering only the gains on merchandise trade) - dwarfing the estimated $50 billion extra in official development assistance needed annually to reach the Millennium Development Goals set for 2015.

Besides the negotiating agenda agreed at the WTO Ministerial Meeting in Doha, other helpful actions have been taken recently. One is the European Union's commitment at the Third United Nations Conference on Least Developed Countries in May 2001 to phase out over 2002 to 2004 all quota and tariff restrictions on imports of "everything but arms" from the world's 49 poorest countries. As well, the African Growth and Opportunity Act, adopted by the US in May 2000, designated 34 Sub-Saharan countries as beneficiaries of new Generalized System of Preferences (GSP) benefits.

Although the International Conference on Financing for Development is not a trade negotiation forum, the WTO has joined as one of the main Conference partners. The March 2002 meeting in Monterrey, Mexico, will serve in part as a forum in which trade measures may be discussed in the context of their relation to other financial aspects of development and to international institutions and policies. No actual commitments were made at Doha - only agreement to begin negotiations that will take years. Monterrey can serve as a way station in building political support for a fairer and more open world trading system.

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