Director-General Pascal Lamy, in receiving an honorary doctorate degree from the Dhaka University in Bangladesh on 31 March 2012, said that “trade—both imports and exports—in least developed countries can make a vital contribution to development and to poverty reduction”. He encouraged Bangladesh to “continue its leadership role on issues among LDCs”. This is what he said:
LEAST DEVELOPED COUNTRIES IN THE WORLD TRADING SYSTEM
It is my very great pleasure to be here today at this premier institution in such beautiful surroundings and with such distinguished alumni.
The theme I shall address today is the World Trade Organization and Least-developed Countries and my message is a simple one: The multilateral trading system, which the WTO oversees, is integral to the development prospects of least-developed countries (LDCs).
International trade contributes significantly to growth and development in the LDCs. Trade accounts for two-thirds of the 7 per cent annual growth that LDCs have recorded over the past decade.
Bangladesh has done particularly well and is well-positioned for the future. Three of the five fastest growing markets for LDC exports are regional partners: China, India and Thailand.
Yet even though LDC trade grew twice as fast as world trade in the last decade and has doubled its share in global trade, it still accounts for only 1 per cent of world trade.
As the world’s most populous LDC, Bangladesh has a natural leadership role to play. As the coordinator of the LDC Group in 2003, 2007 and again in 2011, Bangladesh has ably advanced the interest of LDCs within the WTO. Bangladesh’s ability to translate WTO flexibilities for the world’s poorest nations into trade and development outcomes is an example for all LDCs
Of course, if Bangladesh is to continue in its leadership role, it needs leaders. This country needs an internet generation that will twitter, blog and network Bangladesh into the global economy. This institution, where noble laureates are forged, and you its students stand out even in a country of 160 million people. You are privileged to have the opportunity to be students at a time of momentous change for Bangladesh and the global economy.
GATT, WTO and LDCs
The World Trade Organization celebrates its 17th birthday this year. On paper a relatively young institution, it traces its history back to the same post-war settlement from which the United Nations and Bretton Woods institutions were born. Indeed, the underlying philosophy of the General Agreement on Tariffs and Trade, the precursor body to the WTO, was that the “beggar thy neighbour” policies which contributed to the violent nationalism and aggression of the 1930s and 1940s should be consigned to the past.
It is a message that still resonates today. Protectionism is by its very nature a source of conflict and it deprives others of the benefit of their talents — their comparative advantage. And in so doing, it raises the costs for all, producers and consumers alike, while creating economic inefficiency. Protectionism impoverishes. And for the least-developed, its impact is especially pernicious given the route which trade offers out of poverty.
Through the GATT, the so-called “contracting parties” at the time set about gradually achieving substantial reductions of tariffs and other barriers to trade and the elimination of discriminatory treatment in international commerce. But this trade opening is not an end in itself. Supported by the right mix of economic and social policies, trade can be a means to raise standards of living, ensure full employment and achieve sustainable development. These are among the most important objectives set for the World Trade Organization.
Opening markets gradually under an umbrella of global rules has been a catalyst in the expansion of global trade. Trade grew 22-fold from 1950 to 2000 and the expansion has accelerated since then, with the notable exception of 2009 when the economic crisis resulted in a contraction unprecedented since the Second World War.
Over time, the organization has become broader in membership. There were 23 governments which had signed the GATT when it became operational in 1948. When the WTO opened its doors in 1995, there were 123 governments around the table. And today, once Montenegro, the Russian Federation, Samoa and Vanuatu complete the domestic ratification of their WTO accession packages, the number of members will have risen to 157. More than 97 per cent of global trade will be covered by the WTO.
Bangladesh joined the GATT in 1972 and was a founder member of the WTO. Today, 31 of the 48 LDCs are members of the WTO — with two on the verge of admission and a further ten in the process of accession. Thanks in part to Bangladeshi leadership, Ministers agreed in December to streamline the accession procedures for LDCs as a means of facilitating their membership in the WTO.
In addition to greater geographical coverage in membership, the WTO has become more complex as the spectrum of issues under consideration by members has broadened. The latest round of trade negotiations, the Doha Development Agenda, launched in 2001 includes agriculture subsidies and tariffs, market access in industrial goods, services, trade and environment, rules in such areas as subsidies and anti-dumping, rules on trade facilitation, intellectual property, and a range of issues where developing countries face challenges in implementing the present WTO agreements.
With a growing list of issues and ever more members, reaching a conclusion in our negotiations has become ever more challenging. Part of the reason for the current impasse in the global trade talks is the difficulty of striking an appropriate balance of benefits and concessions, in particular between developed and emerging countries — a balance which itself is being affected by structural changes in the global economy.
But acting as a forum for negotiation is only one of the functions of the WTO. Other key responsibilities of the organization include:
administering trade agreements
settling trade disputes
reviewing national trade policies and developments in global trade
assisting developing countries in building capacity to be active WTO citizens through technical assistance and training programmes.
WTO and LDCs — crafting rules to help LDCs enter the global trading system
A more open, transparent, non-discriminatory and rules based multilateral trading system can assist WTO members in realizing their potential in an increasingly globalized economy. For LDCs, it is a vital tool. The WTO consensus-driven decision-making gives LDCs a voice and a stake in the multilateral system which neither regional nor bilateral trade schemes can deliver. These benefits are recognized not just by the WTO, but also by the United Nation’s Programme of Action for LDCs, which under the “Istanbul Programme of Action for LDCs” provides a blueprint for international co-operation on integrating LDCs into the global economy.
Trade – both imports and exports – in LDCs can make a vital contribution to development and to poverty reduction. But LDCs also face particular difficulties arising from specific structural and capacity constraints. How does the WTO address these constraints? In essence, through negotiations to open markets and ensure a level playing field, through various forms of special and differential treatment, through trade preferences, through longer periods for implementing commitments as well as through Aid for Trade to build trade capacity.
The WTO system is built on reciprocity. If I agree to reduce my tariffs, I want my trading partners to do the same. But the system is adaptable and there is universal recognition among the members that one size cannot fit all. Special and differential treatment – the WTO code phrase for flexibilities — provides for derogations to this basic WTO principle for developing countries. These derogations can often result in lower levels of commitments or an exemption altogether from offering commitments.
For example, under the Agreement on Agriculture which came into force in 1995, LDCs were not required to undertake tariff or subsidy reduction commitments.
Another way the WTO addresses LDC concerns is through longer timeframes for implementation of commitments. Under the Agreement on Trade-Related Aspects of Intellectual Property Rights, LDCs have enjoyed two transition periods. The most recent transition period expires in mid-2013. One particular achievement of Bangladesh in its role as LDC coordinator at last year’s Ministerial Conference was the decision to give consideration to requests to further extend this transition period. Another decision which has benefited Bangladesh was the 2001 decision on TRIPS and Public Health, which extended this deadline on pharmaceutical patents to 2016. It has helped consolidate the emergence of national pharmaceutical manufacturing capacity in Bangladesh.
Another way in which trade negotiators have sought to take into account the special needs of LDCs is through unilateral or non-reciprocal concessions. Duty-free and quota-free access in favour of LDCs is a commitment undertaken by WTO members at the launch of the Doha Round in 2001. Since then, most developed members have fully opened their markets to LDC imports, followed, more recently, by a number of emerging economies, such as China and India.
As a negotiating forum, the WTO also provides the space for LDCs to pursue their own commercial interests. Market access for industrial products is an area where Bangladesh has important interests. It is also the case in the area of services.
Services are often neglected by development practitioners who tend to concentrate their focus on manufactured goods. But in many economies, it is the services sector that is the largest employer. Improving productivity and providing market access opportunities will have many positive development spin-offs. Between 2000 and 2009, LDC merchandise exports grew at an average annual rate of 15 per cent. A lesser known fact is that LDC commercial service exports grew at the rate of 13 per cent. And by commercial services, I don’t just mean finance and insurance but also culture and entertainment. When the Bangla and English songs from the band “Miles” play on Indian Radio, this is an export — and one on which you will find an interesting story on our website. With its rich cultural heritage and impressive biodiversity, Bangladesh can also be an inviting tourist destination.
The experience of Bangladesh shows that foreign market access for services provided through temporary movements of professionals can have important positive effects in terms of improved availability of scarce foreign currency, improving the current-account balance, financing of higher levels of imports, economic growth, employment generation and poverty reduction. The value of remittances to Bangladesh’s economy is many times larger than aid or even foreign direct investment.
Last year, as coordinator of the LDC group, Bangladesh secured a waiver on services liberalization which gives legal cover to those WTO members willing to offer privileged access on a non-reciprocal basis to LDC service providers.
Another role which WTO can play is providing trade-related assistance to governmental officials, parliamentarians and civil society in developing countries to help them better understand WTO rules and to more ably defend their interest in the global trading system. Or to help academic and research institutions — such as Dhaka University — in building expertise on trade matters by educating future trade policy makers.
Trade-related assistance is part of the wider Aid for Trade initiative which the WTO co-ordinates. It aims at addressing supply-side and trade-related infrastructure constraints which often prevent developing countries from taking advantage of the opportunities offered by the multilateral trading system. Developing assistance for Aid for Trade has increased by 60 per cent since 2005 to reach some US$ 40 billion annually — of which some 30 per cent now goes to LDCs, in particular through the LDC focused “Enhanced Integrated Framework”.
From my vantage point, I can see that members are receptive to the special needs of LDCs. The challenge lies in ensuring LDCs turn these opportunities into realities. And here I return to my view that Bangladesh leads the way for other LDCs.
Turning development flexibilities into development outcomes
Let’s briefly consider the ready-made garment sector — a mainstay of Bangladesh’s economy and the source of more than 75 per cent of total exports and more than 3 million jobs, particularly for women. This sector accounts for over 10 per cent of GDP.
Between 1974 and 2004, world trade in textiles was governed by quotas limiting the amount that developing countries could export to developed countries. The phasing-out of the Multifibre Arrangement began with the debut of the WTO in 1995 and by 1 January 2005 all quotas on textiles and clothing had been eliminated. In many developing countries, including Bangladesh, there was considerable apprehension. Economists here and elsewhere issued dark predictions of doom for Bangladesh and its fledgling garment sector. The reality, I think you will agree, has been somewhat different.
Bangladesh’s garment sector has not just survived, it has thrived. Removing the quotas revealed Bangladesh’s comparative advantage. Unilateral preferences have also helped Bangladesh’s competitive edge. Simplification of the rules of origin governing duty-free and quota-free access to the EU market in 2010 has led to a surge in Bangladesh’s garment exports.
Similar achievements have also been registered in Bangladesh’s pharmaceutical industry, which has seen its growth consolidated by the flexibilities offered to LDCs under the WTO’s intellectual property rules. In this sense, Bangladesh is a model for other LDCs on how to use the flexibilities offered in the multilateral trading system to achieve development outcomes.
This development impact has been strikingly captured by last year’s household poverty survey, which showed a remarkable drop in rates of absolute poverty. Few countries anywhere in the world have recorded an 8.5 per cent drop in absolute poverty over a five-year period. Progressive trade opening has unquestionably helped Bangladesh reduce poverty.
Trade and LDCs: realizing the promise of the DDA
One challenge for Bangladesh is to expand the progress in the garment sector to other sectors of the economy. In short, to diversify so that economic shocks like the one we experienced with the recent crisis do not negatively affect Bangladesh’s trade and development outlook. Diversification spreads the risks.
Bangladesh’s Vision 2021 provides a compelling image of how Bangladesh sees itself going forward. The government is well on track to meet many of these time-bound targets, including achieving middle-income status by 2021.
The flexibilities in the WTO system are aiding Bangladesh’s growth and development. But as the country starts to push against the middle-income bracket, some of those flexibilities will begin to fall away as LDC graduation beckons. Managing this transition will require investing in services infrastructure, and in trade facilitation programmes, and it will require helping Bangladesh business better integrate in global value chains. In sum, it is a transformation that will require a great deal of strategic planning. In the WTO, you will find a willing and sympathetic partner.
Ladies and gentlemen,
Standing here amongst the next generation of Bangladesh’s leaders, I am struck by the opportunities which history confers on you. A vibrant private sector, active civil society and profound social transformation mean Bangladesh is poised to make the next leap to integrate into the global economy.
In 1993, only one in 500 people had access to a telephone. Not even a generation later, Bangladesh had over 56 million mobile phone subscribers.
International institutions tend to speak of development challenges. For the budding entrepreneurs amongst you, I encourage you to see development opportunities. Just think of the services which can now be run off those 56 million telephones. Consider the more than 100 million people who still need to be connected. It is evident that open markets spur innovation and change. Protectionism impoverishes and corrupts.
The WTO is your partner in achieving your development goals. In a world where regional and bilateral arrangements are growing in popularity, it offers a global forum in which members can come together on an equal footing.
I encourage Bangladesh to continue its leadership role on trade issues among LDCs. I encourage you, the students of this fine institution, to deliver on the vision of a Golden Bengal through your individual and collective efforts.
Thank you for your attention.
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