Trade Facilitation, Development in Focus as WTO Begins Aid for Trade Review

2 July 2015

WTO Director-General Roberto Azevêdo called this week for making 2015 “the year of trade and development,” as ministers, delegates, civil society, and private sector representatives gathered in Geneva this week to review the progress of the WTO’s Aid for Trade initiative.

This year’s event, which has as its theme “Reducing Trade Costs for Inclusive Sustainable Growth,” marked ten years since the Aid for Trade initiative was launched in 2005 at the WTO’s ministerial conference in Hong Kong.

According to a report issued jointly this week by the WTO and the Organisation for Economic Co-operation and Development (OECD), Aid for Trade disbursements have now hit US$264.5 billion in official development assistance since the launch of the initiative ten years ago. An additional US$190 billion have been provided via other official flows for financing trade-related programmes in developing countries.

“The development benefits of reducing trade costs are impressive: a one percent decrease in global trade costs would increase global income by US$40 billion at a minimum, with close to two-thirds of this amount accruing to developing countries, according to OECD calculations,” said Azevêdo and OECD Secretary-General Ángel Gurría in a foreword to the report.

However, trade costs remain worryingly high, officials said, with the poorest countries, particularly those that are land-locked being those worst affected.

“High costs suffocate trade. They limit the gains from trade. Worse, the burden of high trade costs falls heaviest on the poorest countries, the smallest firms, and the lowest income consumers,” Azevêdo said during the opening plenary of this year’s Global Review.

In his remarks, the WTO chief outlined three key ways for slashing trade costs and barriers further, with a view to ensuring more of the world’s poor have access to the global trading system and its benefits.

This included, he said, maximising the results of the Aid for Trade initiative; implementing the WTO’s Trade Facilitation Agreement; and negotiating new development outcomes at the global trade body’s upcoming ministerial conference this December.

Eyes on 2015

The fifth biennial “Global Review” of the initiative, which began Tuesday morning at the WTO’s Geneva headquarters and is set to conclude on Thursday evening, comes during a key year for various international trade and development processes.

These include, among others, a push by WTO members to bring their long-running Doha Round trade talks closer to conclusion, with those negotiations now nearly 14 years old. The global trade body’s 161 members have set themselves an end-July deadline for inking a Doha Round “work programme,” one which would outline how to address the various unresolved issues in the talks.

However, with just weeks to go before this deadline, many are questioning whether this target will indeed be met, or if heated disagreements between WTO members over issues such as domestic agricultural subsidies and farm trade tariffs will mean that the deadline could be missed. Some have suggested that the process to conclude such a programme could then drag on to December, when the organisation has its tenth ministerial conference in Nairobi, Kenya. (See Bridges Weekly, 25 June 2015 and 18 June 2015)

Other key dates on the international calendar include a UN summit this September to adopt new post-2015 development agenda and Sustainable Development Goals (SDGs), with the current Millennium Development Goals set to expire this year. A separate UN conference being held this month in Addis Ababa, Ethiopia, is also set to focus on the issue of development financing.

Given this context, Azevêdo said on Tuesday, “I think we have to make sure that trade plays its full role.”

The WTO-OECD report indicated that trade can be a key source of financing for development for the post-2015 development agenda, particularly for least-developed countries, given that this agenda will need “significantly increased” financing to implement.

“However, the trade and development community should take care that the transformative nature of the post-2015 agenda does not inadvertently result in a rise of unnecessary non-tariff measures that would increase trade costs and reduce the capacity of developing countries to use trade as an engine of economic growth and poverty reduction,” the report warned.

Furthermore, the report said, this “new development paradigm” could also mean that the Aid for Trade initiative will need to take on a “more integrated approach,” one that goes beyond trade performance improvements to also strive for positive social, economic, and environmental impacts.

Trade facilitation

One of the five chapters of the joint WTO-OECD report was focused on the Trade Facilitation Agreement – a multilateral deal aimed at easing customs procedures and reducing red tape at the border that was reached at the global trade body’s December 2013 ministerial conference in Bali, Indonesia.

This agreement, the OECD’s Gurría said during Tuesday’s opening plenary, “creates a significant opportunity to reduce trade costs and enhance participation in the global value chains.” Issues such as cumbersome border procedures and poor infrastructure, he explained, are part of the reason that producers in low-income countries are often “priced out” of the global market, even if they would otherwise be competitive.

The TFA has been open for domestic ratification since November 2014, with trade officials including Azevêdo saying that bringing the deal into force would be a key deliverable for the Nairobi ministerial conference.

To bring the TFA into force, two-thirds of the global trade body’s membership must approve it domestically and then submit these “instruments of acceptance” to the WTO. With the organisation being made up of 161 members, soon to be 162 once Kazakhstan’s entry is finalised, that means that at least 108 must send in such instruments.

Eight WTO members have done so to date: Hong Kong, Singapore, the US, Mauritius, Malaysia, Japan, Australia, and Botswana. The EU and its 28 members are expected to submit theirs by year’s end or sooner, while members of various regional coalitions – such as the Asia-Pacific Economic Cooperation countries – have also pledged to do so.

Even so, whether the goal is indeed reachable by Nairobi remains an open question given the number of acceptances are needed, though many efforts to speed up the process are ongoing. For example, in a bid to help developing countries facing domestic legal and capacity constraints in adopting and implementing the agreement, the UN Conference on Trade and Development (UNCTAD) announced last week a new “vehicle” to help in this area.

Development, poverty eradication

The role of trade in poverty eradication was highlighted by World Bank President Jim Yong Kim in his speech during Tuesday’s opening plenary. The Washington-based organisation has set a goal of ending extreme poverty – in other words reducing the percentage of people living on less than US$1.25 a day to three percent – by the year 2030. (See Bridges Weekly, 25 April 2013)

“I say this knowing that, for some, the argument that trade helps the poor has been controversial. Yet our best evidence suggests that, when countries are effectively integrated into regional and global markets, their poorest citizens can reap substantial benefits,” the World Bank chief said.

The objectives of this poverty eradication plan should address both expanding participation opportunities for low- and middle-income countries, along with slashing trade costs that particularly harm the poor and vulnerable in their own trade participation.

International organisations have a key role to play in this endeavour, Kim said, telling participants that “if we succeed together, we will become the first generation to end extreme poverty in the world. It will be one of humankind’s greatest achievements.”

ICTSD reporting.

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