by Matthias Bruckner*, June 2012
The limited integration of LDCs into the world economy is widely seen as a major impediment to their sustainable development. Despite significant growth in the past decade, the share of LDCs in world trade is only slightly above 1 per cent, whereas the share of LDCs is world population is about 12 per cent. Low exports imply a low amount of external resources for development financing. And for many LDCs, low exports also signify limited diversification of productive activities, thereby inhibiting stable economic growth.
In response, the international community has committed to the objective of providing duty and quota free access (DFQF) for products from LDCs. This objective applies to developed countries and other countries in the position to do so. However, progress towards achieving this objective has been slow.
The share of duty free exports (excluding arms and oil) from LDCs to major developed countries has risen only slightly between 1996 and 2010, from 77.6 per cent to 80.4 per cent. Moreover, during the same period, the share of duty free imports from developing countries in general has risen from 54.2 per cent to 78.8 per cent. Hence, in relative terms, market access conditions for LDCs may have actually deteriorated. At the same time, preferential market access to LDCs has been increasingly provided by developing countries, even if product coverage mostly remains below 100 per cent.
Remaining tariff barriers and limited product coverage of preferential trade regimes remains an issue in some developed countries, most notably the United States, where only 36 per cent of all imports from LDCs are admitted duty free. However, even in countries that provide DFQF market access, the amount of duties paid on imports from LDCs remains sizeable. For example, the ratio of duties paid to import value (excluding oil) for LDC imports were almost 1 per cent in New Zealand and 1.4 per cent in Canada. These numbers indicate that the utilization rate of preference regimes remains a problem.
In fact, low utilization of preferences is a common concern among developed countries who participated in a DESA survey on LDC benefits (Canada, Japan, New Zealand and the European Union). Countries identified supply-side constraints, low awareness, rules of origin and low preference margins as reasons for this problem.
In 2011, in response to criticism of the restrictiveness of the previous rules of origin regimes, the EU followed the example of Canada and New Zealand in adopting LDC-specific rules of origin which are less stringent for LDCs than for other developing countries.
*The content, findings, interpretations, and conclusions as expressed in this article reflect the views of its author and do not necessarily represent the views of the United Nations.