United Nations Industrial Development Organization (UNIDO)

UNIDO 9th General Conference

Round Table:

Making Trade Working for the Poor:

Stimulating the Real Economy Response

UNIDO POSITION PAPER

TRADE CAPACITY BUILDING:

Supply Side Constraints, Conformity and Integration in the Global Market


TABLE OF CONTENTS

Executive Summary

I.Trade, poverty and sustainable development

The International context

Trade and the poor

Trade and debt

Barriers to Trade

Technical Barriers to Trade and Sanitary and Phyto-Sanitary Measures

II. UNIDO’s involvement in TRTA/CB

UNIDO TRTA/CB 2001-2003

UNIDO Trade-related Milestones

UNIDO Conference on impact of standardization on developing countries (1967)

MSTQ Assistance (1967-2003)

Surveys on trade implications of ISO 9000, ISO 14000 and eco-labels (1995 –1997)

Pre-peer evaluation of accreditation bodies (1997)

UNIDO Trade Capacity Building Initiative After Doha (2001)

UNIDO Trade Capacity Building Trust Fund (2001)

III. UNIDO approach to Trade Capacity Building

UNIDO Vision

Modalities for TRTA/CB delivery

Removing Supply Side Constraints

Improved Conformity with Market Requirements

Enhanced Connectivity and Integration

Delivery Features

UNIDO Holistic Approach: An effective inter-agency cooperation:

The UNIDO fishbone for market-access and trade capacity building

The UNIDO MoU with the WTO.

Cooperation with ISO

International Accreditation: Cooperation with ILAC and IAF

The JCDCMAS

IV. UNIDO achievements in the field of trade and development

The three TCB regional projects: West Africa, Central America and Mekong Region

Facilitating Trade and reducing poverty in Africa: EU/UEMOA/UNIDO Programme in Accreditation, Standardization and Quality promotion. Budget; Euro 9 million.

Central America trade capacity building programme. Budget US$ 5 million.

Market Access and Trade Facilitation Support for Mekong Delta Countries (Cambodia, Laos, Myanmar and Viet Nam). Budget: US$ 2.5 million

V. New Trends and Concepts

UNIDO’s new initiatives

Informal Consultative Group on Trade Capacity Building

New Methodologies and Tools

VI. Concluding Remarks

REFERENCES

Annex I: MARKET ACCESS FACILITATION FISHBONE

Executive Summary

UNIDO is committed to foster developing countries access to and integration in the global markets assuring adequate protection of consumers and of the environment. UNIDO’s position with regards to trade, poverty and sustainable development and the solutions the Organization is being offering to its member states are defined in the Organization’s Trade Capacity Building (TCB) Initiative and approach that encompasses the improvement of supply capacity, conformity to market requirements to overcome barriers to trade, and enhanced inter-agency cooperation. The UNIDO TCB approach has been developed on the basis of research activities carried out by UNIDO and on the Organization’s forty years of experience in strengthening developing countries’ industrial capacity and their Metrology, Standards, Testing and Quality (MSTQ) infrastructure and skills.

The paper reflects the holistic approach pursued by UNIDO for enhancing developing countries trade capacity aiming at improving coordination and harmonization with key development partners and technical institutions (e.g. fish-bone for market access[1], the MoU with the WTO signed at Cancun in September this year, and the JCDCMAS[2]). UNIDO has been pleading for an interagency response as it considers that facilitating a real participation in international trade is a complex and a multidimensional challenge that requires an international multi-agency response involving not only the UN agencies but also relevant technical partners. UNIDO launched a TCB initiative in Monterrey, which is being reinforced by the formalization of strategic partnership with selected partners.

The paper, addresses specifically the questions raised in the Issues Paper prepared for the Round Table on “Making Trade Working for the Poor: Stimulating the Real Economy Response”.

Chapter I reviews the relation between trade, sustainable development and poverty and the international context. The Milestones of UNIDO’s involvement in Trade-related Technical Assistance and Capacity Building (TRTA/CB) are presented in Chapter II. The logical framework of UNIDO approach for TCB including an overview of the three major ongoing large-scale regional projects (UEMOA, Central America and Mekong region) are given in Chapter III, followed by Chapter IV that outlines UNIDO major achievements in the field of trade capacity building. Finally, new concepts and strategies being pursued by UNIDO are included in Chapter V).

I.Trade, poverty and sustainable development

The International context

The Multilateral Trading System has experienced a severe setback at the WTO Ministerial Meeting in Cancun in September 2003. Its impact on global trade has still to be fully comprehended and the future developments remain uncertain. Nevertheless, multilateral trade negotiations and the WTO Doha Development Agenda[3] still represent a unique opportunity for the developing world and for the Least Developed Countries (LDC). The multilateral rule-based approach to trade -- that encompasses broad negotiations centered on development and supported by technical assistance and capacity-building (Doha Round) – still appear to be a valid, fair, and transparent system compared with bilateral negotiations and regional agreements alone.

The possibility to resume talks and move forward the negotiations will depend on the ability and willingness of WTO members to pursue fair trade rules that would effectively enable poor countries to develop, thus allowing the global economy to flourish.

It must also be stressed that the failure at Cancun followed an important agreement reached by WTO members on medicines. The agreement enables developing countries industries to produce essential medicines to combat HIV/AIDS and other pandemics. And is it expected to give a strong contribution to alleviate poverty and the suffering of the poor.

Thus, the opportunity offered to developing countries at Doha cannot be neglected nor forgotten. The firm commitment of WTO members to “continue to make positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development”, has definitely opened the way to increased support to integrating developing countries in the global economy.

The position of UNIDO in trade capacity building has evolved to respond to the Doha Development Agenda and as a result of its participation to and the results of major international events, not directly linked to the WTO, that took place in the last few years.

At the International Conference on Financing for Development in Monterrey, Mexico, in March 2002, consensus was reached on the need to remove supply-side constraints on trade and secure predictable financing of trade-related assistance and capacity-building.[4] At the same conference, the United Nations Industrial Development Organization (UNIDO) launched its TCB initiative. In September of the same year, the World Summit on Sustainable Development in Johannesburg, South Africa, reaffirmed the importance of trade to sustainable development. It emphasized the need for further efforts in support of sustainable trade, extending beyond the commitments entered into at Doha and Monterrey.[5]

Other attempts have also been made to address the specific trade-related needs of the Least Developed Countries (LDC) and Africa. In May 2001, the Programme of Action for the Least Developed Countries for the Decade 2001-2010[6] was adopted at the Third United Nations Conference on the Least Developed Countries and six months later, the New Partnership for Africa’s Development (NEPAD)[7] was launched. Analysis of both initiatives reveals a commonality of design.

From the Programme of Action for the LDCs and NEPAD, it emerges that the reasons for the failure of developing countries to benefit from the opportunities offered by the rapidly changing global markets clearly are not for want of reductions in tariffs and quotas; the reasons clearly lie elsewhere. As the developing countries themselves recognize, they lack both an effective industrial productive capacity, which they need to ensure optimization of production and product diversification, and the ability to comply with international standards and practices, which they need to exploit the opportunities offered by the liberalized global trading system.

In conclusion, despite the failure in Cancun to respond to the international development agenda, it is clear that it will be necessary to continue efforts to help developing countries to increase trade and growth. Thus, facilitating access to markets, elimination of distorting subsidies and other trade barriers must continue at even stronger pace. On the other hand, to achieve real impact through the trade negotiations will not be enough. It is clear that developing countries need to add value to their production and need to improve their productive capacities so that they are in a position to supply markets with marketable and competitive goods. It will be necessary to come back to the idea that trade is an engine for development and for this reason the Doha Round was called the development round. It will be therefore, essential to expand the TRTA/CB but provide a comprehensive multilateral response showing that a collective UN action will bring about better solutions. In relation to future assistance, it will be necessary to shift from pure support to trade negotiations to enhanced technical assistance on removing supply-side constraints.

Trade and the poor

Many researchers and institutions are studying the relation between trade, sustainable development and poverty, and are involved in assessing whether trade has actually a positive impact on development and clear effects on poverty reduction. It can be stated that linkages between trade and poverty issues are not as direct or immediate as the linkages between poverty alleviation and access to social economic and physical infrastructure such as education, health, water, land, finance, and effective governance. It is, however, evident that growth of the real economy due to an increase in value and quantity of exported commodities, manufactured goods and services has naturally an impact on income and on the wealth of a nation. It is likewise clear that this increase in trade might have a positive impact on the poorer segments of the population and on the country’s income distribution. The degree of the impact of trade, and the process of liberalization, varies in view of the general economic conditions of each country and of the role and strength of both its real and monetary economy.

Poor countries are generally more dependent on trade for generating income than developed countries. One-third of Africa’s GDP comes from trade, while OECD countries earn on average less than a fifth of their GDP through trade.Specifically, it has been reported thatabout 25 LDC depend on non-fuel primary products for more than half of their exports. The poorest countries earn eight times more each year from trade than they receive in aid.A large share of trade in GDP represent a risk for developing countries as they are vulnerable to changes in demand for traded goods, in markets that they do not control nor can influence directly due to existing unbalances among rich and poor countries and enterprises.

The main purpose of this paper is not to discuss globalization. However, it might be useful to schematically present just some of the most common the pros and cons related to trade-orientation and liberalization to better analyze the relation between trade and poverty alleviation:

Main benefits of increasing trade-orientation and trade liberalization

  • Increased export opportunities and specialization in productive activities that can exploit comparative advantages.
  • Higher economic growth and real income through better access to ideas, technology, goods, services and capital
  • More efficient use of resources leading to higher productivity as a result of increased international and domestic competition.
  • Long-term effect on increased inflow of foreign investment and transfer of technology.
  • Increased opportunities to produce competitive goods and services in global demand and incentive to adopt new business practices, develop new products and markets.
  • Extended market facing local producers, allowing them to better exploit economies of scale, which increases income levels and the efficiency of resource allocation.
  • Developing countries might be more competitive in low-skill intensive sectors and these sectors might expand increasing the demand for low-skilled workers, who typically belong to the poorer segments of the population.
  • Increased access to cheaper imported products.

Potential risks due increasing trade-orientation and trade liberalization

  • Domestic firms are typically import competing companies. Often they cannot easily compete on price and quality and therefore they can lose market share or go out of business.
  • Workers in failing businesses can lose their jobs.
  • Workers without skills may not find new jobs or may have to accept lower paying jobs.
  • Removal of tariff barriers might lead to a reduction of government revenue, reducing its ability to provide services to the poor although tariff rates are lower, trade volumes are higher and these two effects work in opposite directions.
  • Trade liberalization is typically followed by a restructuring of economic activities and this might affect negatively the poor.
  • A process towards openness to trade might cause distortions in the balance of payments if the country is not capable of competing in a global market.
  • The full integration of beneficiary countries into the multilateral trading system poses many challenges, which relate to a better understanding of the rules based system, as well as to the implementation and enforcement of rights and obligations that can be derived from membership.

To sum up, trade can foster economic and social development and be a major instrument in bringing about convergence in incomes between rich and poor countries and within the counties themselves. Therefore, Fostering developing countries participation in trade, under fair and transparent rules, can increase and create incomes for the poor, and provide more resources to fight poverty.

To make the process fair and sustainable, governments should act to mitigate possible adverse effects on certain segments of the population (e.g. farmers in rural areas and worker of enterprises in high competition sectors). Likewise, the whole international community must provide fair opportunities for all by facilitating trade and market access and by providing developing countries with both special and differential treatment and needed TRTA/CB.

To effectively access foreign markets, developing countries need constructive help to build up and diversify their supply capabilities:

  • Elimination of export subsidies and the massive transfers to producers in developed countries.
  • Further open up markets for developing countries goods such as tropical products, beverages, food and fiber by slashing tariffs and expanding quotas.
  • Increase investments and technology transfer to upgrade and diversify productive activities.

With regards to WTO non-agricultural market access negotiations that encompass industrial tariff reduction and elimination of non-tariff measures they are key priorities for many industrialized and developing countries within the ultimate long-term objective of total elimination of tariff barriers by all WTO Members. In this context, special consideration for the needs of the least developed countries in terms notably of level and staging of reduction according to their capacity must be addressed.

In overall terms, the share of the value of LDC exports, excluding arms, that enters developed country markets duty-free has increased since 1996. However, when the figure is further adjusted for oil there is a clear downward trend. This downward trend reflects the shift in LDC exports to products and export markets that are not duty-free. In fact, the trade values show that there is basically no increase in the value of duty-free imports from LDCs while at the same time there is a significant increase in the dutiable imports from LDCs.

Moreover, if LDCs are offered special treatments, they are not able to exploit them. Fore example, a recent report from the WTO secretariat to the LDC Sub-Committee emphasizes the extremely low level of utilization of market access preferences. This analysis is based on the utilization of customs data in importing markets and analyzing imports that are eligible for preferences. It is clear that the main reason for the lack of exploitation of preferences is the weakness of productive capacities. It is not enough to achieve market access concessions but it is required that at the same time tradable goods are produced. The international community is actually committed to providing trade-related assistance and the means to facilitate trade and enable greater access to their markets; however, increased efforts should be made by developing countries themselves.

If trade liberalization is to have an impact on poverty, it is vital to that is should be an integral component of comprehensive national development and poverty reduction policies and strategies in the developing countries, ensuring that world trade must be socially and environmentally sustainable. As indicated also, for example, by the Organisation for Economic Cooperation and Development (OECD), putting in place an effective policy framework for trade is essential and all efforts should be guided by a vision to bring into the mainstream a comprehensive trade development strategy in a broader national development and poverty reduction strategy. Therefore, it is necessary to strengthen and harmonize trade and development policies, including those related to debt and supply-side issues[8]. TRTA/CB should be provided based on such a perspective.