15 June 2005
UNCTAD Proposes New ‘Trade Marshall Plan’ for Least Developed Countries
Enhanced Market Access, Liberalization of Services Sector, ‘Aid-for-Trade’ Fund Are Being Proposed to Help World’s 50 Poorest Countries Escape Poverty Trap
(Reissued as received.)
GENEVA, 14 June (UNCTAD) -- Why a “Trade Marshall Plan” for the least developed countries? One sixth of the world’s population lives in extreme poverty and 50 countries –- large and small, located in all developing regions -– are caught in a seemingly endless poverty trap. Solidarity among countries and regions, as well as each country’s self-interest in a “global enterprise” that functions properly -– suggest that a bold action in favour of the LDCs is required.
The condition of LDCs today is similar to that of Europe just after the Second World War, and if an initiative like the Marshall Plan were to be envisaged for LDCs today, it would entail an additional $62.5 billion per year of additional resources, according to UNCTAD estimates. A Trade Marshall Plan for LDCs could deliver a large part of that amount (around $40 billion). From an LDC perspective such funds could cushion adjustment shocks; build productive capacity, competitiveness and critical infrastructure; generate employment; and lift millions of people out of poverty. “This virtuous circle would lead to sustainable trade growth within the LDCs and in turn create new and viable markets for other countries”, says Lakshmi Puri, Director of UNCTAD’s Trade Division.
As of 2004, LDCs’ share in world trade stood at 0.68 per cent (approximately $131 billion) of total world exports of $9.46 trillion, as compared to 3.06 per cent in 1954: LDCs have been increasingly marginalized from world trade over the past 40 years. This is particularly true for the majority of LDCs that are exporters of non-oil primary commodities. Their export growth rates have been negatively affected by declining prices of their most important commodity exports. In the first half of 2003, for example, the price of coffee was just 17 per cent of its 1980 value, cotton was 33 per cent and copper, 42 per cent. Very few LDCs have been able to defeat the syndrome encompassing commodity dependency, low value addition, lack of viable diversification, fallacy of composition and unfavourable terms of trade.
Why now? There is today a happy confluence of a strong moral imperative in the context of poverty alleviation, political consensus on achieving the Millennium Development Goals (MDGs), economic justification and legal viability to make such a Trade Marshall Plan for the LDCs a reality, UNCTAD says. The concept of “trade justice” has emerged and is increasingly supported not only by civil society but by the leaders of numerous developed countries. Development, security and human rights are considered to be closely linked, and there is also a perception that achieving each of these goals depends on pursuing the other two goals in parallel.
When could such a plan materialize? The UN summit in New York this September and the Sixth WTO Ministerial Conference in Hong Kong this December are opportunities that should be seized to show that the political will exists to address in a comprehensive and timely way the main problems faced by the LDCs.
Main Pillars of Plan
UNCTAD’s proposed Trade Marshall Plan includes three pillars. The first two are based on a trade-for-aid logic, whereas the third rests on an aid-for-trade logic. The first pillar is the provision of WTO bound, duty-free and quota-free treatment by developed countries for LDC exports, coupled with effective standards-related capacity-building in LDCs to overcome market entry barriers. The duty-free, quota-free treatment alone is likely to bring welfare gains of as much as $8 billion and could increase LDC exports by an additional $6.4 billion, or 10 per cent, a year. Preferential market access schemes for LDCs, which have been provided by the industrialized countries since the early 1970s, have proven unable to fully achieve the goals of integrating the LDCs into the world trading system, promote their industrialization and accelerate their sustainable economic development. Nonetheless, they have had a positive impact on many LDCs’ exports and government revenues when significant preference margins have been made available for products of interest to them. The main reasons for these mixed results are the non-binding nature of the schemes, the exclusion of particular countries and products from the programmes, stringent and complex rules of origin and the linkages between preferential tariff treatments and non-trade issues, such as the enforcement of environmental, social and labour standards, intellectual property rights protection, and the fight against drugs.
“In the absence of responsive supply capacity, even the most generous market access enhancements alone may not be sufficient to strengthen the links between trade and development in the world’s poorest countries”, UNCTAD warns.
Despite the existence of such schemes, the share of total LDC exports under most-favoured-nation (MFN) treatment still constitutes the bulk of their trade, much of the preferential treatment remaining virtual. Switching the preferential treatment for LDCs from virtual to actual could take the form of a ministerial declaration granting duty-free and quota-free access for all LDC products on a bound time-limited basis (10 to 20 years) and pledging the necessary reforms in the schemes, particularly in the areas of rules of origin. This should allow for global cumulation rules to be adopted and harmonized across schemes, and administrative procedures need to be simplified.
The second pillar is a liberalization package in services that would include measures to operationalize LDC priority areas, specifically in Mode 4 access (movement of services providers), in sectors of special interest to them, such as tourism, entertainment and sporting services, and in such other areas as the issuance of visas and work permits. UNCTAD estimates that a liberalization package in Mode 4, coupled with a capacity support package in trade in services for LDCs, could generate $10 billion to $20 billion per year. LDCs as a group account for only 0.4 per cent of total world exports of commercial services, and their imports are close to 1 per cent. However, considering that many services sectors play a key role in the performance of other economic sectors, trade in services is gaining recognition as an important contributor to the economic performance of the LDCs. There is no legal basis for providing discriminatory trade preferences in favour of LDCs under the current framework of the General Agreement on Trade in Services (GATS). One way to address this shortcoming could be a WTO ministerial declaration or decision to provide a legal basis for allowing preferential market access on services for the LDCs.
The third pillar envisages the creation of a $1 billion Aid-for-Trade Fund, which would be in addition to aid for development. The fund would provide much-needed finance ($15 billion over two-to-three years) to meet adjustment costs arising from trade reform and help provide the hardware and software of trade-related infrastructure, supply capacity and competitiveness-building in commodities, manufacturing and services. “In the absence of responsive supply capacity, even the most generous market access enhancements alone may not be sufficient to strengthen the links between trade and development in the world’s poorest countries”, UNCTAD warns. In addition, some commitments should be included in the ongoing trade negotiations to ensure that the obligations deriving from existing and future trade deals will be coupled with the financial resources needed to comply with such obligations.
Contacts: Press Office, tel.: +41 22 917 5828, e-mail: email@example.com, website: http://www.unctad.org/press; L. Puri, tel.: +41 22 917 5176, e-mail: firstname.lastname@example.org; or S. Zarrilli, tel.: +41 22 917 5622, e-mail: email@example.com.
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