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April 22, 2011
Summary: This brief examines the nexus between trade and development in poor countries in sub-Saharan Africa and elsewhere, with a focus on the trade, infrastructure, and food security pillars in the Seoul action plan. It highlights positive elements in that action plan and makes specific recommendations on how the G20 could contribute to advancing them.
A G20 Agenda for Trade and Development in Poor Countries
By Kimberly Ann Elliott
We strongly believe that trade can be an effective tool for reducing poverty and enhancing economic growth in developing countries, LICs [lowincome countries] in particular. To support LIC capacity to trade, we welcome the adoption of the MultiYear Action Plan on Development. —The Seoul Summit Document The United Nations LDC [Least Developed County] IV Conference in Istanbul in May of this year is a key opportunity to lay a foundation for the growth that is needed to promote and sustain progress on the Millennium Development Goals. The G20’s multi-year action plan for development, if effectively and expeditiously implemented, will provide important inputs into that process. Trade is just one of the nine pillars in that plan, but several others are closely linked to using trade more effectively as a stimulus to growth and development in poor countries. These include the infrastructure and food security pillars identified as priorities this year by the French government, which currently holds the G20 chair. Fewer trade distortions and deeper markets would play an important role in improving food security, while better infrastructure
is needed in many countries to lower trade costs. Targeted safety nets to protect the most vulnerable, as called for in the sixth pillar on “growth with resilience,” including those addressing food security, are also a more efficient and effective response to external shocks than trade measures. In addition, investment in human capital is clearly needed for trade and economic growth generally, and trade provides both technology and broader markets that can make private investments more profitable and boost job creation. This brief examines the nexus between trade and development in poor countries in sub-Saharan Africa and elsewhere, with a focus on the trade, infrastructure, and food secuThe Pillars of the Seoul Multi-Year Action Plan Infrastructure Human resource development Trade (enhance trade capacity and access to markets) Private investment and job creation Food security Growth with resilience (social protection programs) Financial inclusion Domestic resource mobilization Knowledge sharing
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rity pillars in the Seoul action plan. It highlights positive elements in that action plan and makes specific recommendations on how the G20 could contribute to advancing them. Trade and Market Access The trade pillar in the Seoul action plan begins with a commitment “to make progress towards duty-free and quota-free (DFQF) market access for the least developed country (LDC) products in line with Hong Kong commitments.” Rich countries initially pledged to do this in the Millennium Declaration in 2000. Over the subsequent few years, the European Union (EU), Norway, Canada, Australia, and New Zealand implemented programs that approached that goal, albeit with a few product exclusions in some cases and restrictive rules of origin in others, especially Europe, a weakness that was addressed by the EU last year.1 The World Trade Organization’s ministerial meeting in Hong Kong in 2005 reiterated the commitment to DFQF market access and called on developing countries “in a position to do so” to also provide such access, although with more flexibility in implementation. At the same time, U.S. negotiators narrowed the commitment by insisting on only 97 percent of tariff lines as the explicitly defined objective. The Hong Kong communiqué was followed by expanded preferences for LDCs in Japan, Korea, Switzerland, Turkey, India, China, and Brazil, albeit usually with more restrictions and exclusions than in the programs announced earlier in the decade. The United States introduced a nearly DFQF preference program for sub-Saharan Africa in 2000 and expanded preferential access for Haiti incrementally over the decade, but the U.S. Generalized System of Preferences (GSP) offers preferences on only about 80 percent of tariff lines for 15 Asian LDCs. Moreover, the U.S. GSP program was not renewed by Congress at the end of 2010 for reasons ranging from the broadly philosophical to the picayune (a two-company fight over sleeping bag imports).2
1 Kimberly Ann Elliott, Opening Markets for Poor Countries: Are We There Yet? CGD Working Paper 184, Washington: Center for Global Development, October 2009. After that paper was published, the EU changed the rules of origin for LDCs to, among other things, allow eligible exporters to use imported fabric and still have the resulting apparel items enter duty-free (http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/10/ 588&format=HTML&aged=0&language=en&guiLanguage=en). The new rules went into effect at the beginning of this year (http://ec.europa.eu/taxation_customs/customs/ customs_duties/rules_origin/preferential/article_777_en.htm). 2 http://www.hktdc.com/info/vp/a/intmk/en/1/2/1/1X07DGZP/USTR-Still-Mulling-Possibility-Of-Removing-Sleeping-Bags-From-GSP-Coverage.htm, accessed on April 8, 2011.
Research suggests that full [product] coverage by major emerging markets could double or triple the benefits for some LDCs, particularly in Africa, compared to full coverage from rich countries alone.
The U.S. market remains the world’s largest, but that is offset to some degree by the fact that many developing country markets, including the large ones, are growing faster than the United States — and that makes the G20 an important forum for improving market access for the poorest countries. But how? A Center for Global Development working group, comprised of 19 members from around the world, including North America, Europe, Japan, Turkey, India, and Brazil, endorsed three key principles for meaningful duty-free, quota-free market access programs: full product coverage; flexible rules of origin; and stability, including making the programs lengthy or even permanent. The working group called on rich countries to implement these principles immediately and emerging markets to do so by 2015, the target date for meeting the Millennium Development Goals.3 Research suggests that full coverage by major emerging markets could double or triple the benefits for some LDCs, particularly in Africa, compared to full coverage from rich countries alone. And LDC imports are generally one percent or less of total imports in both sets of countries.4 Concrete steps by the G20 could begin with an endorsement of the principles for meaningful DFQF market access. This is crucial because substantial research, illustrated in Figure 1, shows that excluding three percent of tariff
3 The working group report and other information may be found at http://www.cgdev. org/section/initiatives/_active/reformingtradepreferences/global_trade_preference_reform. 4 Antoine Bouët, David Laborde Debucquet, Elisa Dienesch, and Kimberly Elliott, “The Costs and Benefits of Duty-Free, Quota-Free Market Access for Poor Countries: Who and What Matters.” CGD Working Paper 206, Washington: Center for Global Development, March 2010.
Figure 1: Distribution of Tariff Revenue Collected on WTO LDCs Exports by Destination Market
Note: Theoretical tariff revenue is computed as the product of actual trade times the applied preferential tariff. With the full implementation of Everything But Arms in September 2009, LDCs’ exports do not face residual protection in the EU market.
cient customs hold up trade for days or weeks, will find it difficult to take advantage of preference programs. Building adequate physical infrastructure, notably for transportation, energy, and telecommunications, will take years and billions of dollars. Given the magnitude of the needs, the Seoul action plan calls in the first instance for a needs assessment and a comprehensive plan for infrastructure from the multilateral development banks. A high-level panel is to report at the summit in Cannes on mechanisms for scaling up and diversifying financing for infrastructure, as well as commenting on the feasibility of the MDB plan. But soft infrastructure, such as customs, should not be ignored and, in many cases, trade costs can be significantly lowered with modest investments in trade facilitation and capacity building.
The experience of many African countries over the past decade illustrates all too well that market access alone is not enough. Despite having duty-free Source: Valdete Berisha-Krasniqi, Antoine Bouët, David Laborde, and Simon Mevel, The Development Promise: Can the access for all but a few (albeit imporDoha Development Agenda Deliver for Least-Developed Countries? IFPRI Note 14, Washington: International Food Policy Research Institute, 2008. tant) agricultural items, with flexible rules of origin for apparel, the U.S. lines removes any benefit, as do restrictive rules of origin.5 African Growth and Opportunity Act G20 countries should then commit to provide baseline (AGOA) did little to sustainably promote African exports. reports for the Cannes summit on whether they have such As shown in Figure 2, nearly all the exports under AGOA a program and to specify divergences from these core are petroleum, and most of that is explained by the increase principles. Even without committing to specific improvein the price of oil. Lowering trade barriers is a necessary ments, the glare of the spotlight would provide incentives but not sufficient step in expanding LDC exports. The for reform. This is also an opportunity for the emerging World Bank reports, for example, that while the strongest market members of the G20 to take a leadership role, with reformer on trade facilitation in recent years has been subor without American cooperation. President Sarkozy is in a Saharan Africa, that region still lags on most indicators and good position to rally the G20 on this issue, given that the the estimated cost to export is twice as high as in East Asia EU has already complied with the working group prinand nearly 50 percent larger than the cost in South Asia.6 ciples in its Everything But Arms program. Some of the difference is explained by the large number of landlocked countries in Africa, but by no means all of it. Trade Capacity Building and Infrastructure Thus, the Seoul action plan also calls on G20 members to Even with duty-free, quota-free access, exporters in coundeliver on their Aid for Trade commitments. But, given tries without paved roads or where red tape and ineffi5
Trade, Food Security, and Resilience Just three years after food prices spiked 60000 120 to levels not seen since the 1970s, food prices are again rising sharply and millions of poor people are threat50000 100 ened with hunger and malnutrition. Millions more could find themselves falling back into poverty. Two price 40000 80 spikes of this magnitude just three years apart, caused at least in part by extreme weather events, highlight 30000 60 the increasing volatility that climate change is likely to bring to agricultural 20000 40 markets.9 It is too soon to be sure, but the steady rise in food prices since 2000 could also signal a reversal of the 10000 20 decades-long decline in commodity prices, with populations growing and incomes rising faster than crop yields 0 0 (Figure 3). These events underscore 2001 2002 2003 2004 2005 2006 2007 2008 the fact that governments and donors Petroleum (SITC 33) Apparel (SITC 84) All other Crude oil price need to address both the short- and Source: U.S. International Trade Commission, Dataweb long-run aspects of food insecurity. Policies to promote food security also range along a spectrum, from ensuring the need to also improve soft infrastructure, delivery that families have enough of the right kinds of food to mechanisms should emphasize both country ownermaintain health, to making certain that global supplies are ship and mutual accountability, as recommended in two adequate for a growing and richer population. recent Center for Global Development publications. The first proposal is to create a “doing business facility” that For this year, given the renewed price spikes, it makes sense would reward countries taking steps to facilitate business for G20 members to focus on policies to temper volatility creation and growth by providing additional resources to and to mitigate its effects, especially on the poorest. More7 expedite reform. A second proposal calls on donors to over, if the G20 process can contribute to locking in and help reforming governments underwrite “service guarinstitutionalizing some of these policies, it would promote antees” for businesses. These guarantees would be similar food security over the longer run as well by helping to to existing investment risk insurance products provided avoid or mitigate the effects of future crises. One useful by the U.S. Overseas Private Insurance Corporation or idea that seems likely to be adopted is a Joint Organizations the World Bank’s International Finance Corporation. A Data Initiative for Food Security, which would build on key difference, however, is that they would be available to existing capacity at the Food and Agricultural Organization local, as well as foreign, investors and could cover areas and elsewhere, and improve capacity in countries where 8 such as customs clearance, licensing, and power supply. By it is weak, to improve the collection and dissemination of providing some assurance that reforms will be sustainable, data on commodity production, consumption, and stocks.10 these proposals would help draw private investors to Africa and reassure donors that their aid dollars are being used The (second) draft multi-agency paper requested by the G20 does not find an increase effectively.
Figure 2 U.S. Imports under AGOA
See http://www.cgdev.org/content/publications/detail/1423783. See http://www.cgdev.org/content/publications/detail/1421337.
in volatility for the entire period 1970-2010, but does find that average volatility was higher in the 2000s than in 1980-2000. See “Price Volatility in Food and Agricultural Markets: Policy Responses,” Policy Report including contributions by FAO, IFAD, OECD, WFP, the World Bank, the WTO, UNCTAD, IFPRI, and the UN HLTF, second draft, link available at http://ictsd.org/i/news/bridgesweekly/102877/ accessed on April 8, 2011.
Dollars per barrel
Figure 3 World Food Price Index, 1960-2010
400 Constant 2000$ Current$ 350
Doha Round appears dead, despite solemn pronouncements to the contrary, so the question becomes whether the G20 can find the political will to move forward in at least some of these areas without a binding legal agreement.
Internally, countries also often respond to price spikes with policies that are costly and inefficient, such as price controls or broad subsidies or tax cuts 200 that help the rich as well as the poor. A better approach to food security at 150 the household level is to develop safety nets that provide targeted cash trans100 fers to the poor. Brazil and Mexico, among others, already have experience 50 with effective conditional cash transfer programs and they could provide 0 technical assistance to help vulnerable 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 countries create or expand safety nets. G20 members such as India and South Source: World Bank, Databank, GEM Commodities, online Africa also have experience to share regarding the use of biometric identifiImproved commodity market information would reduce cation and e-banking technologies to make the implemenuncertainty and could dampen speculation from driving tation of cash transfer programs cost-effective and more prices to levels unsupported by fundamentals. corruption-resistant.11 Trade will also play an increasingly important role in meeting the challenges of growing demand and the effects of climate change. Even with significant increases in agricultural investments in developing countries, many of them will not be able to achieve self-sufficiency and will continue to rely on imports, making deeper and lessdistorted markets a key element in food security for them. Individual country actions to restrict exports or suddenly increase imports exacerbate price spikes for those unable to insulate themselves, as well as reducing incentives for their own farmers to increase production in the future. Thus, Over the longer run, the food security pillar of the Multiquickly concluding the Doha Round would help by elimiYear Action Plan for Development adopted in Seoul nating export subsidies and reducing other trade-distorting calls for consideration of creative, results-based financial agricultural subsidies, thereby providing incentives for mechanisms to stimulate innovation in developing country increased trade and production in developing countries. agriculture and engage the private sector. The Canadian The benefits of such an agreement could be multiplied if government is taking the lead on this issue and working it were expanded to discipline export restrictions, which with the World Bank and others to develop a process were a major source of the spikes in rice markets in 2008, go further than the current draft in reforming food aid For an introduction to this research, see this note and the associated powerpoint practices, and address biofuel subsidies. Unfortunately, the presentation: http://blogs.cgdev.org/globaldevelopment/2010/10/biometrics-identity250
2000 = 100
Trade will also play an increasingly important role in meeting the challenges of growing demand
and the effects of climate change.
for identifying a pilot project using this approach. It is hoped that a concrete proposal for moving forward can be presented to the leaders for endorsement at the summit this fall.12 Conclusion Ending poverty and hunger, improving child and maternal health, achieving universal primary education, and the other Millennium Development Goals are the outcomes that we ultimately hope to see from the development process. Equitable economic growth is an essential vehicle for getting there and the multi-year action plan for development adopted by the G20 in Seoul points in the right direction. Trade, including through regional integration, is a theme linking several of the action plan pillars. But improved market access in rich and rapidly growing markets can only contribute to job creation and private sector growth if countries have adequate infrastructure and supportive policies in place. More secure and less distorted trade flows would also be an important contributor to food security. Given the growing importance of South-South trade, it is time for these issues to migrate from the G8 to the G20.
About the Author
Kimberly Ann Elliott is a senior fellow at the Center for Global Development and the author or co-author of numerous books and articles on trade policy and globalization, with a focus on the political economy of trade and the uses of economic leverage in international negotiations.
The German Marshall Fund of the United States (GMF) is a nonpartisan American public policy and grantmaking institution dedicated to promoting better understanding and cooperation between North America and Europe on transatlantic and global issues. GMF does this by supporting individuals and institutions working in the transatlantic sphere, by convening leaders and members of the policy and business communities, by contributing research and analysis on transatlantic topics, and by providing exchange opportunities to foster renewed commitment to the transatlantic relationship. In addition, GMF supports a number of initiatives to strengthen democracies. Founded in 1972 through a gift from Germany as a permanent memorial to Marshall Plan assistance, GMF maintains a strong presence on both sides of the Atlantic. In addition to its headquarters in Washington, DC, GMF has six offices in Europe: Berlin, Paris, Brussels, Belgrade, Ankara, and Bucharest. GMF also has smaller representations in Bratislava, Turin, and Stockholm.
12 Kimberly Ann Elliott, Pulling Agricultural Innovation and the Market Together. CGD Working Paper 215, Washington: Center for Global Development, June 2010.
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