Among the big international conferences this year that will shape global development, one has been overlooked: the 10th World Trade Organization (WTO) ministerial in December. As the world faces slower economic growth, as well as a slower increase in trade intensity than we saw before the 2007-2008 financial crisis, it is critical that trade and development discussions respond to this new reality.
So what are the big trade and development issues to watch this year?
1. Designing a trade system that keeps poor countries at the core
Significant progress on trade negotiations in the past decade has occurred at the regional level. The so-called ‘mega-regional’ trade agreements, such as the EU-US Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, are currently being negotiated outside the multilateral trading system, thereby excluding the world’s least developed countries (LDCs) and potentially putting them at a major disadvantage.
LDCs on their part want to see an ambitious outcome on global trade rules at the WTO ministerial this December: an agreement that will reduce trade barriers and trade-distorting subsidies in agriculture; and which gives trade preferences on services.
However, there is not much hope of a significant breakthrough – what is currently on the table mostly cements existing positions rather than liberalising more trade. This would be a pity. Instead, we could learn from the success of the recent conclusion of the WTO Trade Facilitation Agreement to make progress on other multilateral trade negotiations.
At the same time, countries negotiating the ‘mega-regional’ trade agreements need to consider the potential harm to poor countries when shaping the agreements. For example, discussions on EU-US trade standards should also include ways to help developing nations reach those standards. There could also be value in committing to monitoring development impacts of mega regions and binding them into WTO principles.
2. Shifting from ‘free trade’ to ‘open trade’
No country has transformed structurally without engaging in trade. Most trade experts appreciate the direct and indirect ways in which trade supports growth and poverty reduction, but some experts disagree that free trade is the answer.
There is currently not enough debate between the trade community and the trade doubters. Shifting from the loaded term ‘free trade’ to the concept of ‘open trade’ could serve as a way to restart that debate and talk about transparent and managed – rather than completely unregulated – trade systems.
3. Global value chains (GVCs) have opened up new opportunities for poorer countries
Developing countries now have access to a completely different way of doing trade. To export, a country does not need to show an advantage in the production of all parts of the product. Instead of producing and exporting a whole car, it is now possible to produce just the wheels, or cables. This makes it much easier for poorer countries to make smaller, less coordinated pushes into global value chains, rather than full-scale development of a value chain, as it requires single tasks rather than a complex set of complementary tasks.
Taking part in GVCs demands a shift in policy priorities. We need to see more emphasis on trade logistics and non-tariff barriers rather than the traditional focus on tariffs and market access. We also need to keep revisiting rules of origin to reflect the reality of modern production, with different parts coming from different countries. And there should be greater attention to product quality, standards, and improving how different links in global value chains communicate with each other.
4. Reducing the cost of trade should feature in all post-2015 development debates
There is currently a disconnect between trade conferences and both the development finance and Sustainable Development Goals agendas. Yet reducing trade costs is a key way to enable poor countries to transform their economies. While there is some debate on how best to measure these costs, significant progress can be made easily by improving infrastructure – from developing ports and roads to simplifying regulatory requirements and making logistics services more efficient.
The zero draft Addis Ababa Action Agenda text recognises the role of trade and trade policy in implementing a post-2015 development agenda. It supports, for example, a rules based system, the WTO Bali package, emergence of global value chains, and regional integration. Indeed we have found elsewhere that good trade policy can unleash more finance, make finance more effective and reduce the need for finance altogether.
However, there is also a missed opportunity to spell out how an ambitious trade agenda is a fundamental part of structural transformation strategies. This could include a goal to free the world of all distortionary trade restrictions by 2030. To underscore the transformative nature of development, the combination of better trade policy and Aid for Trade resources could be explicitly targeted at reducing trade costs to a pre-specified benchmark by 2030.
Reducing trade costs should be included in all the major global summits this year: the fifth Aid for Trade review in early June/July; the financing for development conference in Addis this July; the UN General Assembly in September, where the SDGs will be agreed; and of course the WTO ministerial in Nairobi – not to mention the Paris climate conference and the G20 meeting in Antalya. With better coordination among the different conferences, a focus on trade could provide the strong rallying cry that the poorest countries need.
This blog draws on a brainstorm meeting organised by the Department for International Development Trade Policy Unit (DFID TPU) and the Overseas Development Institute International Economic Development Group (ODI IEDG) on 13 February 2015 which gathered the key trade stakeholders: World Trade Organization (WTO), World Bank (WB), ODI, Commonwealth Secretariat, Center for Global Development (CGD), International Trade Centre (ITC), International Centre for Trade and Sustainable Development (ICTSD), Trade Mark East Africa (TMEA), Saana Institute, European Centre for Development Policy Management (ECDPM), Graduate School, Food and Agriculture Organization (FAO), IDEAS Centre, University of Sussex and several UK government departments.
Download the summary and meeting notes.