How should we use trade to boost development?

The architecture of development provisions in the multilateral trading system has been designed with the mind-set of “aid granting and recipient” as opposed to a business approach. The openly discussed reason for this is to enhance development of least developed countries (LDCs) and developing countries.

A number of these provisions are couched in language that leaves the LDCs at the mercy of developed countries. They are “best endeavour” provisions, namely, developed countries are not obligated to grant whatever is at issue. Therefore, the resulting notifications or monitoring requirements are not attended to with the seriousness they deserve.

Political statements, on the other hand, continue to be correct. All countries pronounce to be committed to development and to helping the LDCs emerge from poverty and indeed graduate. The reality in negotiations is to the contrary. The texts and agreed provisions always end up in soft law language, utilising “best endeavour” rather than hard law obligations. If developed countries are committed to assisting LDCs why not elevate the language to more obligatory commitments? The very nature of the problem of poverty should not be met with best endeavour.

I submit that the status quo could be attributed to this “aid” mind-set. This is the mind-set we all must endeavour to change. Trade is business. It must be understood that if a developed country provides assistance to an LDC, that LDC will have a more conducive environment for the developed partner to trade better. It’s a win-win scenario. If, for instance, an LDC is assisted with regulatory reforms in services, developed country enterprises will have a better environment not only for entry but to operate.

The mind-set of LDCs should also change from being recipients of aid to doing business. I do not understand why LDCs must not be ready to take up commitments that could enhance their trade if such commitments are accompanied by enabling support to build capacity. The result is that both developed countries and LDCs will achieve the bigger picture of a better multilateral trading system. Aid of course has its place. However, it must not be the guiding norm for all economic engagements between the WTO’s developed and LDC members.

Increasing trade in services

The fact that commitments under the development provisions of the Trade Facilitation Agreement (TFA) are tied to enablement through capacity building should inform negotiations in other areas of trade.

The LDC services waiver has fallen into the same best endeavour language trap where the waiver provides that “Notwithstanding the provisions of Article II:1 of the GATS, Members may provide preferential treatment….” This language does not provide any obligation on members to extend any preferential treatment to LDCs. Further, emphasis has been placed on market access preferences while application of any other measures is subject to approval of the WTO Council for Trade in Services (CTS).

It is now trite that in order to realise increased participation of LDCs in trade in services, market access alone is not sufficient to achieve that goal. Measures that address barriers must also be invoked. Unlike in goods trade, barriers in services trade are typically regulatory. Therefore, apart from market access preferences, LDCs shall require preferential treatment with regard to national treatment and domestic regulation, such as qualifications and licensing requirements.

As trade is about business, both developed countries and LDCs must see some business sense of development provisions or they will continue to be less than effective. There must be a sufficient business reason for developed WTO members to commit. LDCs must realise that taking up commitments puts them in a better position to attract enablement support.

Statistics show that despite preferences being granted in goods, there has been limited utilisation of those preferences. There are many reasons for this. Capacity of the LDCs is one of them. The other is barriers to market entry. Market entry issues, such as standards and rules of origin, continue to constrain LDC trade. These could easily be attended to by preference granting members and in some cases they have. Unless the preferences make business sense – to both parties – they will remain very much at a political level without resulting in utilisation. The perfect scenario is, for instance, where a preference is granted in respect of an export of interest to an LDC and is a required commodity in the preference-granting member. A case in point is the successful exports of petroleum products to the US under the African Growth and Opportunity Act (AGOA).

In short it must be realised that development provisions are agreed to under the “aid” mind-set, with a few exceptions such as TFA. As a result they are best endeavour. They are not effective. Any subsequent actions such as notification and monitoring are without much seriousness. A business approach could assist in resolving these issues.

The other issue is that of capacity building. Capacity building is always viewed through the lens of technical assistance. It should be more than that. Capacity is the ability to do something. So any action that enhances that ability is building capacity. One way of course is through technical assistance. However there are many ways to enhance capacity of LDCs. For instance, if a member simplifies rules of origin for LDCs, that amounts to capacity building. It enables the LDCs to increase their capacity to trade with that member.

After the TFA, in a Post 2015 world, I envisage development provisions of the future to be couched in a similar fashion that offers a business solution of mutual benefit. Redefining capacity building from simply a technical assistance perspective to a broader approach is necessary.

This article is published in collaboration with ICTSD. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Darlington Mwape is a Senior Fellow at ICTSD.

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