The Financial Express

LDC trade trails far behind SDGs' target

LDC trade trails far behind SDGs' target

Almost one-fourth of the time span for implementing the Sustainable Development Goals (SDGs) has already elapsed.  The United Nations (UN) adopted 2030 Agenda for Sustainable Development, popularly known as SDGs, in September 2015. Pledging that 'no one will be left behind,' the UN member countries have agreed to end poverty, promote economic prosperity, ensure social development and protect environment by 2030.

Trade has been recognised as a critical tool to achieve global sustainable development by 2030. A number of goals and targets are directly linked with trade. In this way, SDGs also provide due importance to enhancing trade of Least Developed Countries (LDCs). Goal-17 calls for strengthening the means of implementation and revitalising the global partnership for sustainable development. One target (17.11) under the goal is: "Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries' share of global exports by 2020."  To measure the level of achievement of the goal, the corresponding indicator is the 'share of global exports' of developing countries and LDCs.

Against the backdrop, a meeting held at the World Trade Organisation (WTO) in the first week of this month reviewed the developments in preferential rules of origin granted by developed and developing nations to LDCs, and also discussed trends in LDC trade and market access conditions.

TREND OF LDC TRADE: WTO secretariat report, presented in the meeting to facilitate the discussion, showed that the share of LDCs exports of goods and services stood at 0.94 per cent of total global exports in 2018, which was slightly higher than 0.92 per cent in 2017. This is a matter of concern for several reasons, especially in light of achieving the SDGs. For better understanding, more details of trade pattern is required.

WTO estimation also showed that LDCs' share of global goods exports stood at 1.02 per cent in 2018 which was 0.96 per cent in 2015. At the same time, LDCs' share of global goods imports stood at 1.38 per cent last year which was 1.41 per cent in 2015. It further showed that LDCs' total trade in goods increased to US$456 billion in 2018 from $379 billion in 2015. The ratio of LDCs' merchandise trade in global goods trade stood at 1.20 per cent in 2018. LDCs' total trade is 'approximated as the sum of their exports and imports'.

Again, LDCs' combined exports of commercial services stood at US$40 billion in 2018 which was only 0.69 per cent of global exports of commercial services. The amount and ratio were $33 billion and 0.67 per cent in 2015. On the other hand, import of commercial services was $74 billion the last year which was $69 billion in 2015. Thus, LDCs' total trade in commercial services stood at $ 114 billion in 2018 and the share in global commercial services at 1.02 per cent.

WTO estimation further added that the ratio of LDCs' total trade (combining merchandise and services) in terms of global trade stood at 1.16 per cent in 2018. In 2018, global combined trade was estimated at $24,645 billion while the LDCs' total trade stood at $569 billion.  The ratio and value were 1.16 per cent and $482 billion respectively.

The trend of LDCs trade clearly shows that as a group of the poorest countries, it is yet to improve its position in the global trade map.  It is largely trailing behind the STGs' target of doubling its share in global exports. In 2015, LDCs total export was $189 billion which was 0.89 per cent of global exports. It reached $236 billion in 2018 which was 0.94 per cent of global export worth $24,971 billion. Thus LDCs' total export is yet to cross 1.0 per cent of global exports and it is clear that it can not be doubled by 2020.

MARKET ACCESS: The main instrument for the LDCs to enhance their goods exports is preferential tariff-free market access to developed and advanced developing countries. Hong Kong Ministerial Conference (MC5) of the WTO categorically set a binding obligation for the developed nations to provide tariff-free market access to LDCs for at least 97 per cent of their products. For developing nations, it is optional.

  The WTO review report pointed out that Australia, New Zealand, Norway and Switzerland provide full duty free access to their beneficiaries. More than 97.0 per cent of the tariff lines of Canada, Chile, European Union (EU) and Japan are also duty-free for products originating from LDCs. Moreover, advanced developing countries like China, India and South Korea allow at least 90.0 per cent their tariff lines duty-free. The United States (US) is the only country which yet to provide duty-free access to all the LDCs. Under its African Growth and Opportunity Act (AGOA) and the Caribbean Basin Initiative (CBI) schemes, eligible LDCs from Africa and Caribbean regions enjoy duty-free benefit.

Though a large number of countries provide preferential access to LDCs, the main challenge is utilisation of market access facility by complying with the rules of origin as well as non-tariff measures (NTMs). Due to stringent or complex rules of origin, LDCs in some cases forgo the preferential treatment and enter the markets paying duties under the Most Favoured Nation (MFN) treatment. Products that   enter markets under MFN system are known as 'preference eligible but entering MFN dutiable.' For instance, more than 60 per cent of readymade garment (RMG) exports from Bangladesh to Switzerland face MFN tariff despite being eligible for preferential market access to the country. It is mainly due to NTMs like Swiss certification and direct shipment requirements and related documentary evidence to become eligible for duty-free access.

Utilisation of preferential benefit varies across the LDCs. The WTO report said that there are 'substantial differences across LDCs in regard to the 'type of duties applied to their exports when entering preference-granting markets'. For instance, some 80 per cent of Bangladeshi exports enter preference granting countries by utilising the LDC preference or other preferences. But country like Nepal enters the preferential markets paying MFN duties for 65 per cent of its exportable despite being preference eligible.

SERVICES TRADE: LDCs' stake in global trade in commercial services is still low due to the complex nature of the market. Nevertheless, LDCs are trying to get better market access with flexible terms and conditions. A major problem in LDCs is their lack of understanding and absence of data. While trying to review the LDCs trend in services trade, WTO found that only Bangladesh has bilateral services trade statistics so far.

As of now, only 24 countries have agreed to provide some relaxed market access to LDCs to export services. These countries also notified the WTO accordingly of their preferential treatment to services and services suppliers of LDCs under the LDC Services Waiver. Another meeting at the WTO in the last week of October reviewed 'how WTO members are making use of the Services Waiver that allows them to grant more favourable treatment to service suppliers from LDCs.'

In the meeting, LDCs pointed out that some regulations have restrictive effect on market access for LDC service suppliers that increase the costs of trade. In this connection, they requested the preference-granting members to 'tailor their preferences to the collective request tabled by the LDCs in 2014.' They also stressed on abolishing the 'requirements for the recognition of qualifications and market access restrictions, including residence obligation for professionals from LDCs'. The outcome of the meeting indicates that LDCs have a long way to go to get a commercially meaningful waiver in services export.

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