Challenges of trade and aid

THE International Trade Centre, a global body that helps developing countries benefit from more trade, early this week offered some valuable lessons to rich nations. In a report, it reiterated the need for better market access for poor and developing countries.

Its argument is very simple. Improving market access and market entry for developing countries will improve fairness in global trade. This will contribute to reducing global poverty. ITC emphasised that developing countries need to export more in order to boost growth and reduce poverty and provide opportunities for wealth creation in their domestic markets, which are typically small.

ITC came out with some interesting statistics. Duties paid on imports from developing countries in developed countries markets still remain high – in excess of US$ 50 billion in 2008, a sum greater than all aid-for-trade assistance.

In this report, ITC has applied a new methodology offering more accurate estimates of global poverty distribution and the impact of export growth on poverty. These new estimates avoid over-emphasising the gains from globalisation that occur when looking merely at gross domestic product growth per capita, rather than household income and consumption. ITC said poor countries cannot grow and reduce poverty without exports and, therefore, market access and market entry are critical.

The ITC report highlights key market access issues for developing countries such as tariffs, non-tariff measures and the utilisation of preferences. It examines the relationship between export development and poverty reduction and outlines implications for both developing country policies and international measures to improve markets. It also calls for greater transparency on the outcomes and impact of ‘fair trade’ voluntary standards on producers and exporters in developing countries.

It also had some advice for poor countries saying they could boost each other’s commerce by removing non-tariff barriers such as red tape that hamper exports.

Given the fact that ITC works in partnership with rich countries represented World Trade Organisation and the United Nations Conference on Trade and Development (UNCTAD), recommendations are unlikely to go unheeded.

The report should also be an eye opener for the West especially the US and Europe, which of late have been opting for both tariff and non tariff barriers (NTBs) to checkmate imports from developing countries. One of the reasons for this could be governments in the West coming under pressure from their local industries. As options for tariff is limited the West has placed greater reliance on NTBs.  In the latter some requirements have been stretched to best practices in labour, environment, etc.

The growing chorus that Sri Lanka’s preferential access to Western markets is fast diminishing is a foregone conclusion. The country has lost the EU Generalised System of Preferences (GSP+) for the time being whilst the US GSP scheme is also under review. The threat of these two important access routes for Sri Lankan exports being cut off remains potent. Whilst anti-West elements in Sri Lanka have been quick to castigate US and Europe for being unfair, the country also has lot of grounds to cover in terms of best practices politically and economically.  

Whilst the West runs the risk of being accused for using the ‘human rights’ stick to punish some countries with trade sanctions or restrictions, the ITC report underscores that greater trade is key for reducing poverty of the very people that richer nations claim to be concerned of.

It is also important that the more affluent or bigger nations within the developing countries’ league enhance market access to poorer colleagues. A case in point closer to home is India. The giant neighbour and the emerging superpower China have of late become Sri Lanka’s leading donors, be it in the form of grants or concessionary loans. For the West as well as Asia’s two giants, the message should be trade and not aid. The Sri Lankan Government has endeavoured to push the trade agenda with the rest of the world, but there appears to be a lack of vigour and consistency.

The tragedy is that whilst straining ties with the West, major buyers of Sri Lankan exports, the country has tilted too much towards aid, especially from China and India. As a smarter and progressive nation, Sri Lanka needs to carve a more productive and sustainable strategy when it comes to meeting challenges of boosting trade and getting bilateral financial support. In the long run, the route of trade is wiser than aid.