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Improving the Trade-Poverty Relationship through the International Trade Regime

Presentation by Michael Herrmann, UNCTAD, 2004

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A clear presentation that uses key data to question some of the central issues regarding the relationship between trade and poverty. Based on the UNCTAD Least Developed Countries Report, 2004 This is relevant for anyone studying or teaching trade in an LDC context concerned with poverty issues The data from the presentation be used as the basis of a lecture or seminar on trade and poverty






Presentation:
UNCTAD’s Least Developed Countries Report 2004






Improving the Trade-Poverty Relation
through the International Trade Regime







Michael Herrmann
Policy Analysis and Research Cluster


Special Programme for Least Developed Countries
United Nations Conference on Trade and Development


Geneva, Switzerland




Structure of presentation



Multilateral trade liberalization

• Promises of liberalization

• Relative importance of liberalization



• Tariff barriers



• Agricultural subsidies




Beyond multilateral trade liberalization



• Generally applicable support measures

• LDC-specific support measures



• South-South cooperation





Multilateral trade liberalization:
Promises of liberalization






Simulation exercises have shown that multilateral trade liberalization
can increase export revenues, increase income levels and reduce
poverty incidents. Dynamic estimates suggest that multilateral trade
liberalization will


• Increase the level of income of developing countries by about
5% (Cline 2004)



Per capita income of Ethiopia in 2001 without multilateral trade
liberalization: USD 121

Per capita income of Ethiopia in 2001 with multilateral trade
liberalization: USD 127



• Decrease the number of extremely poor in developing


countries by about 61 million (World Bank 2003)


Number of extremely poor in LDCs by 2015 without multilateral
trade liberalization: 137 million



Number of extremely poor in LDCs by 2015 with multilateral
trade liberalization: 129 million




In 2000, the total number of extremely poor in the LDCs was 334
million; by 2015 the total number of poor is projected to increase to
471 million.




Multilateral trade liberalization:
Relative importance of liberalization





Chart 39. The share of merchandise exports of LDCs and other
developing countries affected by selected adverse conditions,


average 1999-2001
(Percentage)



Environment-related


trade barriers




Agricultural support m
easures


by advanced countries




Co
m


m
od


ity
p


ric
e


de
cli


ne


in
wo


rld
m


ar
ke


ts


Phasing-out of Agreement
on Textiles and Clothing




Challenges associated


with extractive industries




Ta
rif


f b
ar


rie
rs


of
d


ev
el


op
ed


c
ou


nt
rie


s


Least developed countries Other developing countries


Source: UNCTAD, The Least Developed Countries Report 2004





Multilateral trade liberalization:
Relative importance of liberalization






Summary table: Share of exports of LDCs and ODCs affected by
adverse trade conditions, average 1999-2001


(Percentage)



Least
developed
countries


(LDCs)


Other
developing
countries
(ODCs)


Tariff barriers of developed
countries 24 38


Environment-related trade
barriers 41 20


Agricultural support measures by
advanced countries 11 4


Commodity price decline in world
markets 28 15


Phasing-out of Agreement on
Textile and Clothing 24 13


Challenges associated with
extractive industries 38 20



Source: UNCTAD, The Least Developed Countries Report 2004, chart 39.




As tariff barriers and agricultural subsidies affect a relatively small
share of LDC exports, how important is multilateral trade liberalization
for LDCs?




Multilateral trade liberalization:
Tariff reductions






Under current conditions, the benefits that LDCs may derive from
multilateral trade liberalization are likely to be overestimated.



This is because


• Most LDCs have already very open economies. The benefits
from an opening-up of their own economies are therefore
relatively limited.



• Major LDC trading partners already grant relatively far-


reaching market access preferences. The benefits from a
further opening-up of their economies are therefore also
limited.



• Multilateral trade liberalization is not only associated with


benefits but also costs, as it inevitable leads to an erosion of
market access preferences.



• Multilateral trade liberalization does not do away with other,


more important intl. impediments to increasing trade such as


o Environment-related barriers (i.e., SPS, TBT)

o Developments of intl. commodity prices



o Management of extractive industries





Multilateral trade liberalization:
Agricultural subsidies





The benefits that LDCs may derive from a phasing-out of agricultural
subsidies provided by advanced countries are likely to be
underestimated.

This is because


• The evaluations of benefits concentrate on current pattern of
production rather than past and future potential patterns of
production.



• The evaluations of benefits concentrate only on products that


receive support and disregard products that serve as
substitutes.



• The evaluations of benefits disregards the fact that trade in


agricultural goods is characterized by a relatively high poverty-
intensity. (The relatively high-poverty intensity of agricultural
trade stems from the fact that the majority of the poor lives in
rural areas and is directly or indirectly dependent on
agricultural production and trade.)



• The evaluations of benefits disregard the importance of


agricultural sector development for overall economic
development (dual-economy type models).




Multilateral trade liberalization:
Agricultural subsidies




Agricultural support for following products is particularly damaging for
LDCs:


• Beans


• Beef and veal


• Cotton


• Garlic


• Maize


• Milk


• Onions


• Potatoes


• Rice


• Sheep meat


• Sorghum


• Sugar


• Wheat


A regional/ country approach to phasing-out of agricultural support is
not operational; a product approach to phasing out of agricultural
support can introduce sample-selection bias.




Beyond multilateral trade liberalization:


Generally applicable support measures

• Measures to cope with negative shocks of commodity price


decline

• Measures to deal with challenges associated with extractive


industries


LDC-specific support measures



• Special and differential treatment (SDT)

• Market access preferences



• Supply-side preferences



• Aid for trade




South-South cooperation



• Global System of Trade Preferences (GSTP)

• Regional trade arrangements








LDC-specific support measures:
Special and differential treatment (SDT)





Summary table: SDT articles and SDT provisions
by targeted country and issue



124 SDT articles Targeted countries


104 Developing countries
24, of which LDCs
15 LDCs and developing countries
6 LDCs only
2 LDCs and small suppliers
1 LDCs and low-income countries
1 LDCs and net food-importing countries
1 LDCs, developing countries and net food-importing countries



160 SDT provisions Targeted issues


38 Encourage special consideration of LDCs
31 Encourage financial and/ or technical assistance
21 Allow for flexibility in implementation of agreements
20 Allow for flexibility in application of agreements
18 Allow for different types of subsidies
12 Encourage extension of market access preferences
8 Encourage favorable treatment in safeguard actions
5 Allow for different types of import restrictions
1 Allows for paucity of the principle of reciprocity
1 Encourages actions to stabilize commodity prices
5 Others



Source: UNCTAD, Least Developed Countries Report 2004, pp. 241-245

Note: (1) The sum of parts exceeds the total, because in some instances a single provision
refers to several country groups. (2) The 124 articles/ paragraphs include about 160
provisions of SDT provisions, as some articles/ paragraphs include more than one SDT
provision.


The majority of SDT provisions are best-endeavor provisions, i.e.,
they are of a non-binding nature. Of the 24 SDT articles that apply to
LDCs explicitly, 14 encourage merely special consideration of their
difficulties.




LDC-specific support measures:
Special and differential treatment (SDT)






To strengthen the effectiveness of SDT it is desirable that

• SDT be better targeted to countries in need



• SDT be better targeted to problems of these countries



• SDT be not compromised in the process of accession



• SDT become binding commitments of advanced countries



• SDT be complemented by other types of support measures,


including e.g.


o Sufficient financial/ technical assistance


o Unilateral market access preferences


o Unilateral/ multilateral supply-side preferences




LDC-specific support measures:
Market access preferences






Table 50: Quad countries' merchandise imports from LDCs and
other developing countries (ODCs), selected years 1982-2002




1982 1992 2002 1998 1999 2000 2001 2002
LDCs 0.1 0.2 0.2 -2.7 -12.5 12.6 35.3 11.3
ODCs 12.4 12.5 17.4 -3 -4.5 12 2.1 7.4
LDCs 0.8 0.5 0.6 -3 -24.2 9.5 14 1.9
ODCs 21.2 13.9 16.5 -0.2 4.4 11.5 -1.4 -1.3
LDCs 0.7 0.5 0.4 -4.9 -1.1 -1.1 -3.1 39.2
ODCs 62.4 49.7 59.4 -1.3 1.5 9.3 0.4 1
LDCs 1 0.8 0.8 0.6 -14.8 14.5 7.5 -4.1
ODCs 41.3 40.3 47.2 -4.4 6.2 4.2 -0.5 2.9


Canada


EU


Japan


USA


% of total imports % change over previous yearImporter/
reporter


Exporter/
partner



Source: UNCTAD, Least Developed Countries Report 2004

Note: 2000 USA introduces new AGOA initiative; 2001 the EU introduces EBA initiative;
2000 Canada widens LDC GSP scheme; 2001/2002 Japan widens LDC GSP scheme;
(2002 USA enhanced AGAO; 2003 Canada and Japan enhanced respective LDC GSP
schemes.)


After introduction of market access preferences, US imports from
LDCs decreased, EU imports from LDCs increased marginally,
Canadian imports from LDCs increased by 35% in 2001; Japanese
imports from LDCs increased by 39% in 2002. But in case of Canada
ad Japan, imports increased from very low base levels.

Import coverage of preferences was above 95% only in EU; utilization
rate of preferences was above 95% only in USA. In other Quad cases
preferential schemes covered a relatively small fraction of LDC
imports and were characterized by relatively low utilization rates.




LDC-specific support measures:
Market access preferences






To improve market access preferences, it is desirable that

• Preferences are extended to all products

• Preferences are granted for unlimited time



• Preferences are made transparent, reliable and predictable



• Preferences are not undermined through



o Overly stringent sanitary, phytosanitary standards

o Overly stringent technical standards



o Overly complex rules of origin



o Agricultural support measures of advanced countries


• Progress of multilateral trade liberalization, spread of regional
trade arrangements, and expansion of preferential agreements
will inevitable erode market access preferences. Countries should
make optimal use of market access preferences while they are
available and consider completing them with additional support
measures, e.g. “supply-side preferences”.




LDC-specific support measures:
Supply-side preferences






Supply-side preferences include “home country measures” but are not
limited to these measures.

• Purpose: Help poor countries attract foreign direct investments


and benefit technology transfers.

• Feature: Decrease risk/ cost of investment in poor countries


through provision of special benefits, including e.g. provision of
tax incentives and/ or subsidies.



• Challenge: Ensure beneficial linkages between foreign investors


and local investors.







LDC-specific support measures:
Aid for trade




Chart 46. Trends in aid for trade-related infrastructure to LDCs,
other low-income countries (OLIS), lower-middle-income


countries (LMIC) and upper-middle-income countries (UMIC)
(USD millions)


0


500


1000


1500


2000


2500


3000


3500


4000


1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001


LDCs OLIS LMIC UMIC



Source: UNCTAD, The Least Developed Countries Report 2004.



In the 1990s aid for trade-related infrastructure had a tendency to
decline. For LDCs it declined by 45% in per capita terms between
1990-2001. This is part of a general tendency. In the 1990s aid to
LDCs declined and its composition changed, towards social sector.

• In early 1980s 45% of bilateral aid commitments were targeted at


productive sector development;

• In 2000-2002 only 23% of bilateral aid commitments were


allocated for this purpose.




LDC-specific support measures:
Aid for trade





The OECD/ WTO database on trade-related technical assistance
includes expenditures on



• Trade policy and regulation



• Trade development



• Infrastructure



o Transport



o Storage



o Communication



o Electricity



It is difficult to distinguish between trade-related infrastructure and
other infrastructure. Therefore focus is now on trade policy and
regulations, and trade development

The OECD/ WTO database suggests that bilateral commitments for
trade-related infrastructure may be underestimated, but even with the
broader definition of trade-related activities, bilateral commitments to
this sector are low:

• In 2002 bilateral commitments for trade policy and regulation


accounted for 0.5% of the total;

• In same year, bilateral commitments for trade development


accounted for 1.5% of the total




LDC-specific support measures:
Aid for trade






Table 59: Aid for trade-related technical assistance and capacity-


building for the LDCs, 2001 and 2002


Part I: Trade policy and regulations


USD,
thausand


% of sub-
category


USD,
thausand


% of sub-
category


Trade policy and regulations 158 611 100 75 046 100
Trade mainstreaming in PRSPs/development plans 11 360 7.2 3 317 4.4
Product standards (TBT and SPS) 69 599 43.9 2 206 2.9
Trade facilitation procedures 51 636 32.6 10 949 14.6
Customs valuation 136 0.1 137 0.2
Tariff reforms .. 0 49 0.1
Regional trade agreements (RTAs) 9 682 6.1 50 350 67.1
Accession 102 0.1 472 0.6
Dispute settlement 4 0 100 0.1
Trade-related intellectual property rights (TRIPS) 436 0.3 410 0.5
Tariff negotiations - non-agricultural market access 108 0.1 696 0.9
Rules 111 0.1 191 0.3
Training in trade negotiation techniques 1 0 92 0.1
Trade and environment 482 0.3 2 068 2.8
Trade and competition 916 0.6 510 0.7
Trade and investment 130 0.1 300 0.4
Transparency and government procurement 4 0 198 0.3
Trade education/training 12 882 8.1 2 171 2.9


2001 2002




LDC-specific support measures:
Aid for trade






Table 59: Aid for trade-related technical assistance and capacity-


building for the LDCs, 2001 and 2002


Part II: Trade development


USD,
thausand


% of sub-
category


USD,
thausand


% of sub-
category


Trade development 407 640 100 249 109 100
Business support services and institutions 165 857 40.7 82 407 33.1
Public-private sector networking 2 032 0.5 691 0.3
E-commerce 112 0 1 173 0.5
Trade finance 134 501 33 39 711 15.9


Financial policy and administrative management 3 179 0.8 15 755 6.3
Formal sector financial intermediaries 117 415 28.8 18 848 7.6
Informal/semi-formal financial 13 801 3.4 4 427 1.8


Trade promotion strategy and implementation 35 414 8.7 50 336 20.2
Agriculture 20 234 5 8 477 3.4
Fishing 82 0 2 437 1
Industry 14 162 3.5 22 723 9.1
Tourism 193 0 15 149 6.1


Market analysis and development 69 724 17.1 74 791 30
Agriculture 52 198 12.8 67 450 27.1
Fishing 17 257 4.2 595 0.2
Industry 238 0.1 6 192 2.5


Infrastructure 1 942 108 100 1 405 020 100
Transport and storage 1 096 695 56.5 610 487 43.5
Communications 99 681 5.1 68 058 4.8
Energy 745 732 38.4 726 474 51.7
Total 2 508 359 1 729 174


2001 2002




Source: UNCTAD Least Developed Countries Report 2004




LDC-specific support measures:
Aid for trade




Poor trade performance is rooted in weak production capacities. Thus
trade capacity building should be seen as a part of the wider objective
of productive sector development and private sector development.
This is particularly important and particularly difficult in economies that
are heavily dependent on a few primary commodities.

Summary table: Forgone export revenues of LDCs in 2001…


…Due to changes of
commodity prices in


world markets against
1980 base year



…Due to changes of
LDC shares in world
exports of goods and
services against 1980


base year


USD, million USD, million
Cocoa 55 293
Coffee 70 765
Cotton 386 2,975
Copper 103 -25

All non-oil primary
commodities 1,169 5,508


All exports of goods
and services n.a. 20,800



Source: UNCTAD, Least Developed Countries Report 2004, box table 1, pg. 127


USD 20.8 billion in forgone export revenues is about equal to


• 153 % of net ODA disbursements to LDCs in 2001

• 11% of the GDP of the LDCs in 2001





South-South cooperation






Chart 41. Imports of LDCs from other developing countries


(ODCs) and imports of other developing countries from LDCs as
share of their total imports respectively, 1980-2002


(Index, 1980=100)


0


20


40


60


80


100


120


140


160


180


200


1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002


Imports of ODCs from LDCsImports of LDCs from ODCs



Source: UNCTAD, The Least Developed Countries Report 2004.

Many developing countries maintain relatively high trade barriers;
LDCs would benefit from their reduction. Reduction could be pursued
at the multilateral level or through preferential agreements, e.g.

• Global System of Trade Preferences (GSTP)

• Regional trade arrangements





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