UNCTAD GOVERNING BODY HEARS PLEAS FOR IMPROVING PREFERENTIAL TRADE SCHEMES FOR LDCS

UNCTAD GOVERNING BODY HEARS PLEAS FOR IMPROVING

PREFERENTIAL TRADE SCHEMES FOR LDCS

GENEVA, 10 October (UNCTAD) -- Preferential trade arrangements for least developed countries should be made more permanent, said Rubens Ricupero, Secretary-General of United Nations Conference on Trade and Development (UNCTAD), yesterday, pleading for countries that successfully used trade to reduce poverty and enhance growth to be rewarded by an extension of those arrangements, rather than penalized when they came to an end.

The impact of such preferential schemes for developing countries –- including the African Growth and Opportunity Act (AGOA) of the United States and the Everything but Arms initiative of the European Union –- is being studied closely by UNCTAD, to see whether they actually do what they are intended to do, raise income and reduce poverty.  Even where market access preferences have had positive effects, it is not clear whether those effects are sustainable, and whether they suffice to overcome other obstacles to development, such as inadequate supply capacity or trade-distorting policies of their developed country partners.  "To make trade work for poverty reduction, it is important to make market access preferences work for trade", Mr. Ricupero said at today's panel discussion, part of the annual session of UNCTAD's Trade and Development Board (see press releases UNCTAD/PRESS/PR/2003/100 & 101).  And although there was an undeniably clear link between trade growth, employment and poverty reduction, that link was "not always linear or automatic"; policies in areas other than trade were needed to strengthen that link, addressing income distribution and regional disparities, among others.

Lesotho's Trade and Industry Minister, Mpho 'Meli Malie, described how the AGOA had helped his country, a landlocked least developed country with a 45 per cent unemployment rate and an HIV rate of 31 per cent.  After overcoming some difficulties in meeting the eligibility requirements for the AGOA, including incompatible legal systems, Lesotho had gone on to make considerable progress in its textile and clothing industry.  It had targeted job creation as the top-priority task for poverty eradication, and had thus decided to promote the textile industry to investors because of its labour intensiveness.  The sector's employment had risen from 19,000 jobs in 1999 to 55,000 today, making Lesotho the largest sub-Saharan textiles and apparel exporting country into the United States.

But Mr. Malie said that, while the AGOA had helped, preferences alone were not enough; capacity-building was also needed.  The uncertainty as to whether the AGOA and other preferential schemes would be extended was inhibiting new investment. Other difficulties in implementing the schemes derived from supply-side constraints, such as the lack of financing, and the availability of water for industrial use at reasonable cost.  Lesotho was planning ahead for the possible demise of preferences, looking into private-public sector infrastructure projects and revising its macroeconomic policies.  It was also involved in a number of regional initiatives and the development of South-South trade.  "Unilateral market access initiatives are appreciated", he said, but "emphasis should be on a multilateral system of granting of market access, as this has greater predictability and security".

      Preference Schemes are Little Used

An UNCTAD report (TD/B/50/5 and Corr.1) shows that least developed country utilization of market access preferences has been relatively low.  Obstacles to their effectiveness include their relative unpredictability, stringent rules of origin, non-tariff barriers to trade, agricultural subsidies in developed countries and weak supply capacities in most least developed countries.  The report says that, given the temporary nature of these preferences, maximum use should be made of them while they are still available, and that, as they erode, other means of special and differential treatment should be considered.

In yesterday's panel discussion on this subject, Jean-Pierre Chauffour of the International Monetary Fund (IMF) said that the "mirror image" of the fact that utilization rates were often low was logically that the erosion of preferences would also remain limited, and the resultant losses small, except for a few countries.  "Countries with highly concentrated exports would not be the most vulnerable to preference erosion", he asserted, "contrary to least developed countries concerns”. 

William Cline of the Institute for International Economics in Washington, D.C., argued that export growth would have a disproportionate impact on gross domestic product growth, which in turn would have a large impact on poverty reduction.  In order to achieve export growth, it was important to cut agricultural subsidies in developed countries, but it was just as important for those countries to dismantle existing trade barriers, especially in agriculture.  The role of market access preferences in reducing developing-country poverty had been empirically proven, notably by the AGOA and Lesotho example.

To make market access preferences even more effective, he said, the period of applicability should be extended; rules of origin should be simplified; the initiatives should be extended to all goods; and tax exemptions should be offered to foreign investors with a view to overcoming supply constraints in the host countries.

Mr. Cline also called for decoupling all agricultural subsidies from trade and channelling them into other areas, such as environmental protection.  In addition, industrial countries should make "deep cuts" in their manufactures’ tariffs, and developing countries should cut their tariffs "at least half as much".

The link dealt with at UNCTAD XI, to be held in Sao Paulo, Brazil, from 13 to 18 June between preferential trade schemes and poverty reduction –- and, more broadly, between trade negotiations and the productive sector –- is one of the topics that will be 2004.  "Enhancing coherence between national development strategies and global economic processes towards economic growth and development, particularly of developing countries" is the conference theme.  The conference will mark the fortieth anniversary of UNCTAD, the focal point within the United Nations system for trade, development and investment issues.

For further information, please contact:  Press Office, tel.:  +41 22 907 5828, press@unctad.org, www.unctad.org/press.

* *** *