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    Assuring Development Gains From Trade


    © International Trade Centre, International Trade Forum - Issue 2/2004

    The conference will consider three cross-cutting issues in the trade and development debate: poverty reduction; gender; and the creative industries

    World trade has risen rapidly over the past two decades. It grew by 4.7% in 2003 and is estimated to reach 7% this year, according to UNCTAD. That growth has extended to many developing countries.

    Most developing nations, however, can boast only a small part of those gains. In particular, the share of the least developed countries (LDCs) in international trade has declined steadily, from 1.7% in 1970 to 0.6% in 2002.

    Trade performance varies

    Much of the variation in performance can be attributed to the type of trade in which countries are engaging.

    • High value-added goods and services - particularly when they are skills- and technology-intensive - can increase the gains from trade, as some East Asian economies have so impressively demonstrated. Their poverty fell by 40% in the 1990s, while per capita gross domestic product (GDP) has tripled over the past two decades, according to UN Millennium Indicators.
    • Commodity production is at the other end of the scale, as it is highly vulnerable to price fluctuations and external shocks.
    • Labour-intensive manufactures lie somewhere in the middle. While frequently competitive, they have low value-added and can spur a "race to the bottom".
    • Service exports are responsible for some of the biggest gains from trade - a move that has also helped countries slash poverty. Services now account for about 50% of GDP in developing countries as a whole (vs. 68% in the developed world), trade in services represents 16% of all their trade and 23% of their share of global services exports, according to an UNCTAD study prepared for the São Paulo conference. Services now generate about half of all jobs in the formal sector.
    Once again, however, the LDCs account for an infinitesimal percentage (0.4%) of services exports, far outweighed by their imports (1% of total trade in services). They, and most developing countries in general, are net importers of services.

    One way to narrow this gap is to export more services, and here their comparative advantage lies clearly in labour-intensive services, mostly through the temporary movement of "natural persons" (the so-called "Mode 4" of the General Agreement on Trade in Services).

    Doha and beyond

    The movement of natural persons - along with "special and differential treatment" of developing countries in trade deals, market access and commodities, among others - is one of the areas on which the success of the Doha Round of trade talks hinges. If Doha succeeds in bringing development onto the world trade agenda, it will contribute to the Millennium Development Goal of achieving "an open, equitable, rule-based, predictable and non-discriminatory multilateral trade and financial system".

    Encouraging South-South trade

    Beyond Doha, gains from trade could also come from the recent rise in South-South trade. Although currently accounting for just over 10% of total world trade, it is growing at a phenomenal rate of 11% a year, and now represents some 43% of all developing country trade. This is what Brazilian President Luiz Inácio Lula da Silva has called the "new geography of trade and economics".

    Reap greater benefits

    "By cultivating development in the world, the multi-lateral trading system can empower all countries to reap greater benefits", says UNCTAD Secretary-General Rubens Ricupero, "and only by cultivating developing countries' development today will members of that system be able to benefit from their markets tomorrow."

    Globalization and development strategies

    The experience of successful developing countries offers lessons in national development strategies that work:

    • One important lesson is that rapidly expanding and sustained investment can induce a shift in economic structure from the primary sector to manufacturing and services, associated with a progressive rise in productivity.
    • Another lesson is that a steady increase in investment cannot be achieved by relying on market forces and foreign direct investment alone; the state must take an active part.
    • National governments must also encourage the availability of lending, create a sound legal framework for business, build infrastructure and foster an educated workforce.
    • At the same time, regional arrangements in trade and finance, and improvements in regional infrastructure, can promote growth and create larger markets, thereby reducing dependence on traditional markets.
    Erica Meltzer is Press Officer at UNCTAD. The above article is drawn from UNCTAD's press kit for UNCTAD XI.

    To view the full kit of background papers online, and learn more about the UNCTAD XI conference, see UNCTAD's web site at http://www.unctad.org