2016 has been a year of trade setbacks, from Brexit’s likely implications to questions over U.S. support for the Trans-Pacific Partnership. But there has been one bright spot: the growing popularity of “aid for trade,” a set of policies aimed at helping developing countries take advantage of international market openings.
In fact despite the protectionist rhetoric worldwide, 2017 will likely see more developing countries participating in trade than ever before.
PACER Plus, an agreement between Australia, New Zealand and Pacific island nations to promote economic development through greater regional trade and economic integration, will be signed by the end of 2016.
The 110th ratification of the World Trade Organization’sTrade Facilitation Agreement, the magic number needed for the agreement to enter into force, could come as early as January 2017. The TFA aims to cut trading red tape, particularly for small- and medium-sized businesses, which are the primary job-creation engine in many emerging economies. The agreement includes technical assistance to help developing countries comply and take advantage of new trade openings.
“We all know trade has been a driver of economic growth and that economic growth, in turn, has driven an improvement in the quality of people’s lives,” Tom Gormon, CEO of supply chain logistics firmBrambles, said. “It also should not be forgotten that international trade and the exchange of goods, services and ideas fundamentally has a major role to play in breaking down barriers and misunderstandings. We believe trade drives peace on a global basis.”
For developing countries in attendance, the DFAT conference was an opportunity to seek clarifications on outstanding issues, discuss barriers to open trade and enable new partnerships. As the exclusive media representatives at the conference, Devex has the key takeaways for the development sector.
1. Developing countries need new expertise and stronger confidence.
Trade can open up new markets for employment, improve health and education standards, and reduce dependence on foreign aid. But first, developing countries need the confidence, know-how and technical expertise to take full advantage of trade opportunities.
On WHO’s TFA, for example, “there is still a lack of information and a degree of skepticism about the agreement,” Findlay said. “Listening to the people from around the region in the room, there are a lot of different interests and priorities related to the implementation.”
While concerns vary widely across countries, many challenges relate to information and capacity building. The open forum enabled their voice to be heard, and connections established may begin overcoming these barriers.
Pich Rithi, undersecretary of state for theCambodian Ministry of Commerce, explained that the cost to facilitate online trade information and portals required his country to invest heavily in hardware, software and IT professionals to meet expected standards.
Dhunraj Kassee, a customs and trade facilitation expert from Botswana, explained to Devex that the private sector was lacking critical knowledge on trade agreements that could assist them to push trade to the top of political agendas.
“It is always interesting for people to share their experiences, to know where we have the same common experiences and to learn from others,” Sheri Rosenow, WTO Secretariat for the Trade Facilitation Agreement Facility, told Devex. “To keep up the momentum is also important — it is comforting for countries to know we are all working hard on this together.”
2. Cut red tape to lure private sector investment.
Private sector representatives, including attendees fromBlackmores, Brambles,DHL andFedEx, weren’t shy about laying out the biggest challenges they face in trade. Border processes and the level of red tape topped lists of complaints. International companies are less likely to invest in developing countries with frustrating and convoluted bureaucratic processes, they said.
“Operationally delays, holdups and inflated regulatory costs raise operating expenses and reduce our profit margins,” Lyall Howard, head of government relations for vitamin supplement company Blackmores, explained. Particularly for public companies, those costs can be difficult to justify to shareholders.
But the private sector is enthusiastic about seeking out new markets, even when conditions aren’t perfect. It’s a balance, according to Howard. “Our strategy as a company is to go wherever the middle class is emerging,” he said. “We have an internal process for analyzing new countries with a range of legal, tax and cultural issues that a potential country can be marked down if it is characterized by complex, costly and uncertain customs processes.”
Howard stressed that less red tape does not mean less regulation; it means that regulation is easier to navigate. For example, exporters might deal with just one government department or use a streamlined process for paperwork. Tidying up the bureaucratic requirements can create new economic opportunities for developing nations.
3. Aid for trade will increase as a priority in aid spending.
An important way for multilateral organizations and donor countries to build the confidence and capability of developing countries is through financial support, including aid for trade.
“Aid for trade is about trying to help the productive capacity of countries, regulatory reform that needs to be done and the infrastructure that needs to be put in place for countries to be able to better use economic reforms that come from trade utilization,” David Holly, assistant secretary for intellectual property, aid for trade and other issues at DFAT, told the conference.
It is a growing area of aid funding for Australia and other donors present. TheWorld Bank is investing $7 billion in trade facilitation projects with two-thirds of this to go to low-income economies. The U.K.’s Department for International Development spend 1 billion pounds ($1.25 billion) annually on aid for trade projects with a focus on Africa, Asia and the Caribbean and 180 million pounds will be spent between 2013 and 2022 specifically for trade facilitation. And by 2020, aid for trade will make up 20 percent of Australia’s official development assistance.
“Because of the size of the benefit that’s there and the mutual interest in capturing that benefit, there is support available at the economy level, the multilateral level, through public alliances and NGOs,” Findlay, said discussing the range of financial support on the table.
Trade can help reveal areas in which investment could make the most impact. Chey Scovell, CEO of the Manufacturers Council Papua New Guinea told Devex about the challenges his exporters face. “It’s a very high cost place to do business — the costs for business premises is very expensive and we pay four times the global average for water,” he said. “Businesses spend on average 15 percent or more of total expenditure on security, and for electricity we are paying more than 50 cents per kilowatt. These are areas where we require significant investment for PNG to be competitive.”
The TFA will be one of the strongest tools yet in aid for trade. The reduction of red tape associated with border processes in developing countries will improve their ability to compete with international markets. Under the agreement, the WTO offers a range of support for the least developed countries including more time to implement trade requirements. It also assists by funding needs assessments to help identify what support and assistance donors could provide and it further contains provisions for limited technical assistance and capacity building in this area.
“Some of the least developed countries understand there is donor support out there to help this move quickly,” said Rosenow. “For some, this is new to them and they are asking a lot of questions.”
4. NGOs have a role at the micro level.
Aid for trade is particularly beneficial for small to medium enterprises — the same sorts of businesses that are likely to fuel economic growth in the developing world. Encouraging smallholder farmers and operators of home-run businesses, including women, to look beyond their borders for international markets can contribute to reducing poverty, improving health and education standards and empowering women.
NGOs have an important role to play in this, particularly at the micro level.
Andy Hunter, senior economic development consultant for World Vision Australia, told the audience that isolation and lack of information on trade policies and practices amongst SMEs, including smallholder farmers, limits economic advancement. As an implementing NGO, World Vision provides education and direct assistance by bringing SMEs to a level where they produce more of the “right product” required by international markets and establish partnerships within value chains.
“Our view at World Vision is that the trade facilitation policy could be more effective at the macro level if we had engaged smallholder farmers at the farm gate,” Hunter said. In Tanzania, for example, World Vision has helped 7,000 smallholder farmers to increase productivity by an average of 70 percent.* Their incomes have risen and they are now more connected to markets.
5. Fair trade is trade, too.
NGOs’ expertise in fair markets is a valuable tool for trade. These programs can open opportunities to exporters and help create boutique, high value brands that empower producers back home.
“If free trade is only about pushing the price down, then we are missing the whole opportunity to make trade truly free and open,” Molly Harriss Olson, CEO of Fairtrade Australia New Zealand, explained to Devex. “To be free and open, the market has to be fair. If we look at the opportunities to align the trade facility agreement is trying to do, Fairtrade is trying to facilitate trade. We are trying to give poor people access to global markets. There is perfect alignment there.”
Fair market principles can make trade viable in markets that might not be able to compete on cost alone.
6. Communication is key.
Misinformation and a lack of awareness on trade agreements are unfortunately common. Information can be lost or misconstrued as it’s passed between government agencies, internal government jurisdictions or even within businesses.
“It’s important for business to learn to speak government and government to learn to speak business,” Scovell told Devex.
Under the TFA, participating countries are required to establish national committees for the domestic coordination and implementation of the agreement — and having the representatives from government, private sector, people working on the ground and NGOs, will improve awareness, understanding and utilization, conference attendees told Devex.
“Governments are more likely to make implementation decisions that are better for businesses if more people are involved in discussions,” Rosenow explained. She said forums such as DFAT’s trade facilitation reform conference were an important step in communication and bringing key players together.
7. Waiting is not an option.
Every country is at a different stages of readiness to expand trade practices and agreements. But the world is not going to wait. If developing nations are to partake in international trade, they will need institutional foundations. Where there are weaknesses, donors and other stakeholders can work to to identify and reduce barriers. Empowered to trade more and better, developing nations can move at their own pace with a clear aim to reduce poverty.
Developing nations should not wait for trade agreements. Standards, policies and practices don’t need trade agreements for change, and agreements with the private sector can be established at any time. Strong political will with clear links to development outcomes are what will make or break a developing nation’s desire to improve trade outcomes — not the whims of global politics.
* Update, Dec. 19, 2016: This article has been updated to clarify that World Vision has helped 7,000 smallholder farmers to increase productivity by an average of 70 percent in Tanzania.
The Department of Foreign Affairs and Trade financially supported the reporter’s travel to Sydney to attend the Trade Facilitation Reform conference. Devex retains full editorial independence and responsibility for this content.
Lisa Cornish is a Devex reporter based in Canberra, Australia. Lisa formerly worked with News Corp Australia as a data journalist for the national network and was published throughout Australia in major metropolitan and regional newspapers, including the Daily Telegraph in Melbourne, Herald Sun in Melbourne, Courier-Mail in Brisbane and online through news.com.au. Lisa additionally consults with Australian government providing data analytics, reporting and visualization services. Lisa was awarded the 2014 Journalist of the Year by the New South Wales Institute of Surveyors.
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