Ladies and Gentlemen,
I wish to extend a warm welcome to all of you who have traveled considerable distances to attend the second series of capacity-building seminars organized by the Renmin University of China. I am honored to have the renewed opportunity to address these seminars and would like to express my heartfelt gratitude to Renmin University for their impressive substantive and logistical preparations. I am confident that the seminars will be a platform for fruitful discussion and mutual sharing of experiences and ideas that will have long-lasting benefits for all participants.
Ladies and Gentlemen,
I am delivering these words on the eve of the Fourth United Nations Conference on the Least Developed Countries, held in Istanbul, Turkey from 9 to 13 May. Extreme poverty, the structural weakness of LDCs’ economies and the lack of capacities related to growth and development, often compounded by geographical handicaps, hamper efforts by these countries to improving effectively the quality of life of their peoples. Most of you come from LDCs and know first-hand the constraints faced by this particularly vulnerable group of countries.
It is commonly accepted that international trade is a key contributor to economic growth. The benefits that accrue from trade are well known. Among the most important ones are the generation of employment and incomes due to specialization, increased competition and greater economies of scale. Every day, the opportunities created by international trade, help to lift people out of poverty and take control over their lives. Trade creates incentives to innovate and improve the production of a wide range of products and services and brings greater choice for consumers.
The Brussel’s programme of Action, in its commitment 5, recognizes the important role of trade for the LDCs, in particular to generate resources for financing growth and development, complementing those from ODA and private capital flows.
Data shows that since the early nineties developing economies have affirmed themselves as an essential link in global supply chains, and consequently saw manufactures become their main export products – about 60 per cent in 2008. In the boom period between 2000 and 2008, the contribution of developing economies’ exports to world trade in manufactures rose from 27 per cent to 34 per cent. During the same period, the total volume of exports from the LDCs almost doubled, with African LDCs leading this expansion.
Increased demand from emerging economies, especially China and Brazil has created new opportunities for many developing countries, in particular African ones. This process was backed by a reduction in tariffs worldwide. As a result of negotiations under the General Agreement on Tariffs and Trade (GATT), which in particular in the earlier rounds focused on lowering tariffs on imported goods, industrial countries’ tariff rates on industrial goods had fallen steadily to less than 4% by the mid-1990s.
Equally important for the developing countries were a number of nonreciprocal preferential programmes, such as, for instance, the Generalized System of Preferences (GSP), the Everything But Arms Initiative (EBA) and the African Growth and Opportunity Act (AGOA) as they effectively improved market access for developing and least developed countries.
Yet, despite these positive developments, LDCs’ participation in global trade has remained stubbornly at below one per cent. LDCs continue to suffer from high transport costs, cumbersome and costly export and import procedures and the absence of a supportive legal framework. It comes therefore as no surprise that today’s main constraints to developing countries’ effective and equitable integration into the global trade lie “behind the border”.
Inadequate physical transport and transit infrastructure are key constraints to developing countries’ integration into international markets. Many face the additional hardship of being landlocked. Of the 33 LDCs in Africa, 12 are also landlocked. The Almaty Probramme of Action, which aims to address the special needs of landlocked developing countries, recognizes that lack of
territorial access to the sea, remoteness and isolation from world markets have contributed to LLDC’s relative poverty, substantially inflating transportation costs and lowering their effective participation in international trade. Being landlocked imposes additional serious constraints on the overall socio-economic development of landlocked LDCs.
This is exacerbated by cumbersome, lengthy and constantly changing customs procedures, requirements and documentation, duplicated inspections, high charges and unnecessary transshipment at border control points. All these so called ‘non-physical’ barriers to trade increase the costs of trading across barriers and cause further delays for cross-border movement of traded goods.
Let me illustrate my point with a few examples:
Recent research on the effects of transit, documentation, and ports and customs delays on Africa’s exports shows that transit delays have the most economically and statically significant effect on exports. A one-day reduction in inland travel times leads to a 7 percent increase in exports. Put another way, a one day reduction in inland travel times translates to a 1.5 percentage point decrease in all importing-country tariffs.
The time necessary to comply with all procedures to export goods in Sub-Saharan Arica, namely 32.3 days, is almost three times higher than the OECD average – 10.9 days. In the case of imports, the difference is even more pronounced: on the average, it takes 38.2 days to import goods into Sub-Saharan Africa, compared with mere 11.4 in the OECD.
This is reflected in the overall costs associated with all procedures required to export goods, such as the costs for documents, administrative fees for customs clearance and technical control, customs broker fees, terminal handling charges and inland transport. In Sub-Saharan Africa, it costs approximately 1960 USD to export one container of goods, while the export of the same container amounts to about 1,060 USD in the OECD and even less in East Asia and the Pacific (889 USD).
Research suggests, that overall, the direct and indirect costs associated with bureaucratic procedures are estimated to represent 7 to 10 percent of the value of global trade.
In a situation where ‘behind the border delays’ – in other words, delays in getting goods from the factory gate onto the ship and through customs – affect exports more than foreign tariffs, concerted efforts are needed to facilitate trade. The World Bank’s Doing Business report shows that delays owing to bureaucratic barriers are the longest in Africa, namely 19 days on average. This is exacerbated in situations where procedures change frequently and in an unpredictable manner.
Trade Facilitation comprises a wide range of policies that focus on simplification, standardization and harmonization of trade policies, procedures and documents with the overall aim to reduce the cost as well as the time of trade transactions.
A first priority is to increase competitiveness and reduce non-physical non-tariff barriers by, inter alia, (i) increasing transparency and predictability of trade rules; (ii) reducing risk and uncertainty in trade; and (iii) effectively implementing trade-related laws and regulations.
Among the specific measures mentioned in the Doing Business series, the following aim at improving the efficiency of border and customs procedures: 1) reducing the number of documents required for importing and exporting, 2) allowing documents to be submitted electronically, 3) limiting physical inspections to only the riskiest cargo, 4) fast-tracking certain shipments for post-clearance auditing, 5) instituting a single window for all trade transactions, and 6) improving coordination among various border agencies.
Using the case of Rwanda, notably a landlocked LDC, I would like to show how even small changes can have significant impact: The extension of operating hours at border controls and the implementation of simpler requirements for documents have helped Rwanda, over the past five years, to reduce its time to export from 63 days in 2005 to a remarkable 35 days in 2010.
To increase the competitiveness of their exports and to be able to reap the benefits from international trade, developing countries – and in particular the least developed and the landlocked developing countries – are encouraged to implement trade facilitation measures, as for instance laid out by the United Nations Centre for Trade Facilitation and Electronic Business. A series of more than 30 trade facilitation recommendations and standards are used worldwide and aim to simplify and harmonize trade procedures and information flow. These standards represent best practices in trade procedures and data and documentary requirements and many of them are now international standards of the International Organization for Standardization.
A second priority is increased infrastructure investment. Inadequate infrastructure is one of the key impediments to moving goods within and across countries. Developing countries, and in particular the landlocked and transit developing countries, need to implement policies aiming at the establishment of efficient transit transport systems. An increase in both the domestic and foreign investment, by both the public and private sectors, is necessary in the transport sector.
The Ten Year Appraisal and Review of the Implementation of the Brussels Programme of Action shows that over the last ten years, investment in infrastructure has been inadequate to meet increasing demand. Improvements in physical infrastructure and transportation both at the domestic and regional levels are particularly important for making globalization work for LDCs and also for improving access for the poor to essential service. Governments and donors need to pay more attention to maintaining and expanding transport networks, including the connection of missing links and favouring multimodal transport infrastructure approaches, which are crucial for interregional and international trade expansion. It is also recommended that a larger share of official development assistance should be directed into the improvement of infrastructure for transport, storage, communications and energy.
A third priority is improved border cooperation and the implementation of regional initiatives and agreements to improve transit systems and regional corridors. It has been said many times that a chain is only as efficient as its weakest link. Nowhere is this as accurate as in the case of global logistics chains. Only improved cooperation at the bilateral and regional levels will enable developing countries to tap effectively into global logistics supply chains and this holds particularly true for the landlocked countries and their transit neighbours.
Evidence gained from the successful implementation of the Asian Highway and Trans-Asian Railway networks shows that the formalization of the networks through related intergovernmental agreements has promoted the development of transport infrastructure in a coordinated manner by attracting stronger commitments of Member States; increased financing from international banks and bilateral donors, and enhanced collaboration with the private sector. It is with great pleasure that I can tell you that the Intergovernmental Agreement on the Asian Highway Network now provides road connectivity to all landlocked countries in the region.
The Economic Commission for Africa, the African Union Commission, the World Bank, the African Development Bank and my Office are closely working together to elaborate and conclude an intergovernmental agreement on the Trans-African Highway, to allow African landlocked developing countries reap similar benefits.
Let me conclude this statement with a brief look at the ongoing trade facilitation negotiations under the WTO Doha Round. The negotiations focus on clarifying and improving the relevant aspects of GATT Articles V, VIII and X, which deal with “Freedom of Transit”, “Fees and Formalities connected with Importation and Exportation” and “Publication and Administration of Trade Regulations”, respectively.
Of particular interest to the developing and least developing countries is the fact that the negotiations also aim at “enhancing technical assistance and support for capacity building in this area” and at developing “provisions for effective cooperation between customs or any other appropriate authorities on trade facilitation and customs compliance issues”. The negotiation modalities further state that the results “shall take fully into account the principle of special and differential treatment for developing and least-developed countries” and that these countries would not be obliged “to undertake investments in infrastructure projects beyond their means”
Early on, the trade facilitation negotiations were one of the few areas of the Doha Round that made significant progress. In December 2009, the chair of the Negotiating Group on Trade Facilitation issued a draft consolidated negotiating text. After that, progress was somewhat slower, in fact subsequent revisions of the text showed higher number of brackets.
On 21 April 2011, the latest revision of the draft consolidated negotiations text was published and represents a new milestone. While there is still a substantial part of the text that needs further deliberation, the number of brackets has been reduced to about half of those of the original text.
Ladies and Gentlemen,
This year marks the tenth anniversary of the launch of the Doha Development Round. To be able to benefit from the results of the trade facilitation negotiations, a successful, timely and development-oriented conclusion of the Doha round is of utmost importance.
I wish you all a productive stay and success in your deliberations.