Globalization and trade-related measures for LDCs

October, 2017.  The SDGs not only reiterate the promotion of a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the WTO (SDG target 17.10), but also include the target of increasing the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020 (SDG 17 target 17.11). Achieving this target could also contribute to the ambitious goal in the Istanbul Programme of Action (IPoA) for LDCs of enabling half the number of LDCs to meet the criteria for graduation by 2020.

It is generally acknowledged that weak participation in global trade and limited productive capacities hamper economic growth in LDCs. These countries have been unable to take full advantage of trade as an engine for growth and as a channel for sustainable development. Among the key development challenges are the need to increase production with a view to increasing exports; value-addition; addressing structural bottlenecks; accessing more markets; and integrating further into the world trading system.

Trade-related support measures for LDCs

 In recognition of LDCs’ special economic situation and their development, economic and financial needs, members of the GATT and the WTO agreed to grant these countries ‘special and differential treatment’ (SDT), including non-reciprocal duty-free and quota-free preferential market access (beyond what is usually granted to other developing countries). Overall, the trade-specific SDT provisions fall into five main categories: (i) increased market access; (ii) safeguarding the interests of LDCs; (iii) increased flexibility within the rules and disciplines governing trade measures; (iv) longer transitional periods; and (v) technical assistance. These measures were expected to spur further LDC growth and integration into the world trading system.

By and large, the consensus is that, although special and differential treatment has made a difference in the larger, more diversified economies such as Bangladesh and Cambodia, it has had only a limited impact on the exports of most LDCs and on helping them assimilate into the world trading system. This is partly due to the way the measures have been designed and implemented. For example, stringent rules of origin have prevented LDCs from realising their full market access potential in a number of countries. A positive development here is the introduction of more flexible rules of origin (agreed recently in the WTO and called for in the SDG target 17.12) in key markets, which has enabled some LDCs to further increase market shares, in particular in the clothing sector. Also, the trade-related support for LDCs through the SDT provisions often lack enforcement mechanisms and are based on voluntary assistance. Fewer problems are encountered with regard to technical assistance from the WTO and longer transition periods for implementing certain WTO obligations. LDCs also face difficulties in obtaining information about the range of available support. In response to the need for a single source of information on all these measures, the UN has developed the LDC information portal, which also provides access to research and analysis related to their use.

The need for additional interventions

Even when LDCs do have relatively good access to international markets, special and differential treatment needs to be complemented by other interventions. Often, the main reason why exports are so low in LDCs is that domestic supply is constrained rather than that international demand or market access are inadequate. Many LDCs simply are not capable of producing goods and services in sufficient volumes, consistency or quality to be able to take advantage of export-led economic growth. In this respect, expanding productive capacity in LDCs is the overwhelming priority in sustainable development. As highlighted by the Committee for Development Policy (CDP), developing productive capacity requires integrated policies in five areas: (i) development governance; (ii) policies for creating positive synergies between social outcomes and productive capacity; (iii) macroeconomic and financial policies that support productive capacity expansion and increase resilience to external shocks; (iv) industrial and sectoral policies and (v) international support measures, particularly in the area of trade.[1]

As the success of a few LDCs in labour-intensive manufacturing shows, the right mix of domestic policies and international support can help to overcome supply-side constraints such as inadequate infrastructure related to domestic production and for the transportation of exports; lack of credit and skilled labour; high costs of inputs; as well as inefficient customs procedures.

Institutional capacity gaps are another critical impediment to increasing LDC exports. LDCs need to improve inter-ministerial coordination on trade policies as well as connections with the private sector. A starting point should be the design and integration of analytical tools to consider priority SDTs and how these measures can support the country’s overall trade and development policies. Raising awareness, stepping up presence in critical areas of trade discussions in Geneva, and building better institutional memory about access to and utilisation of support measures may also help LDC governments to improve their use of SDT.

The likelihood that fewer than half of the 47 LDCs will meet the criteria for graduation by 2020, falling short of the IPoA target, reinforces the need to raise awareness, understanding and utilisation of LDC-specific trade-related support. It may also imply the need for new international support measures aimed at building productive capacity for trade.

Recently graduated countries have shown high levels of concern over the lack of continued support after graduation. A renewed push to establish a formal framework of concrete and predictable measures for phasing out LDC-specific support is required. The international community may wish to think afresh about how to support productive capacity for sustained prosperity after graduation. Discussions at the UN could be followed up in Geneva with supportive WTO members, starting a diplomatic drive for a formal agreement on trade-related transitional measures for recently graduated LDCs.