Published in The Financial Express on Wednesday, 25 March 2015.
Emphasising trade for attaining development goals
Asjadul Kibria
Trade is well recognised for its importance in the development process. But as the development process across the world becomes increasingly complex, sustainability of development appears to be fraught with formidable challenges. So, making trade a comprehensively effective tool for achieving sustainable goals is by all means a critical task. The United Nation’s (UN) move to launch Sustainable Development Goals (SDGs) for the next 15 years has already recognised this. SDGs will succeed the Millennium Development Goals (MDGs) pursued over the past 15 years.
SHORTCOMINGS OF The MDGs: It was 15 years ago when the UN officially launched the MDGs to bring the global development process under a common set of agenda. These goals include halving poverty level and achieving universal primary education along with the objective of fulfilling other important goals by 2015. While 8 goals, divided into 18 targets and 62 indicators, were much appreciated, the tools for attaining these were limited. MDGs mostly relied on domestic resources and aid financing from rich countries to meet resource gap of the poor countries. Thus, many targets are yet to be achieved when MDGs will be officially warped-up in September this year. SDGs will be the global agenda for the next 15 years.
A major drawback in the MDGs has been the lack of using trade as an instrument to attain the various goals and targets. The eighth goal of MDGs is: “Develop a global partnership for development.” Under this broad goal, the first four targets include trade, aid and finance (table-1) and subsequent indicators are set to measure foreign aid inflow to poor countries, market access in developed countries and reduction of debt burden of poor countries. UN’s update on attaining the goals is not very heartening. For example, the UN report shows that “debt service has declined for developing countries, trade climate continues to improve and aid money hits a record high $134.8 billion in 2013, but shifted away from the poorest countries.”
The problem in the MDG framework regarding trade has been mentioned by Overseas Development Institute (ODI), a London-based independent think tank. In a briefing paper in 2014, it said: “In general, the MDG trade targets reflected the global trade agenda of the time, and focused on the liberalisation of market access and on border measures. Other trade-related targets were included in the other MDGs, including access to essential medicines and technology, but it was the liberalisation targets that were considered to be at the heart of the MDG trade dimension. One major shortcoming of these targets (and of the MDGs in general) is that they were primarily about static analysis and welfare redistribution, but not about dynamic analysis and structural change.”
CHALLENGE OF COMPLEXITY: Many experts and civil society organisations believe that trade should be treated as both a goal and a tool in the SDGs. Professor Mustafizur Rahman, executive director of Centre for Policy Dialogue (CPD), a Dhaka-based think tank, opined that trade should be a strong tool to achieve global development goals in the next 15 years. He put a simple argument saying: “Trade can increase production and output of the poor counties and lead to increase in income level. Higher income will help people to spend adequately on education and health. This will ultimately improve human skill and reduce nutrition deficiency. This is a kind of virtuous cycle of development. SDGs need to acknowledge this.”
Professor Mustafiz also believes that there should be a coherence among the different global initiatives for development. In this connection, SDGs need to be coherent with multilateral trade rules under the World Trade Organisation (WTO). “Otherwise, developed countries will again create complexity by referring contradicting commitments which will be very time consuming to resolve,” he told this writer.
One of the proposed 19 goals of SDGs put emphasis on trade. It is the 17th goal under which three targets (Table-2) specifically mentions the promotion of “a universal, rules-based, open, non-discriminatory and equitable multilateral trading system under the World Trade Organisation, including through the conclusion of negotiations under its Doha Development Agenda.” Thus, development is inherent in the multilateral trading system, though ignored several times. In fact, sustainable development is recognised as an objective of the Marrakesh Agreement, the founding pact of the WTO.
The emphasis of the WTO on rule-based free trade implies removal of all kinds of trade barriers and trade distorting practices. While tariff barriers are gradually reducing, a lot of non-tariff and para-tariff barriers are there. Advocates of free trade have argued that removing trade barriers will increase global GDP at a faster rate and reduce poverty. Copenhagen Consensus Centre, an international think-tank, argues that the direct economic benefit of completion of Doha round is 1.1 per cent increase of global GDP annually and the world will be around $1.5 trillion richer by 2030 and thus lift 160 million people out of extreme poverty.
IMPORTANCE FOR BANGLADESH: Importance of trade for the Least Developed Countries (LDCs) like Bangladesh is immense as the country is now a trade-focussed one. Trade-GDP ratio of Bangladesh has increased from 30 per cent to 48 per cent in last 15 years (Chart-1) thanks to faster liberalisation of tariff regime in the late ’80s and ’90s.
The multilateral trading regime has also made a lot of positive impacts on the growth of Bangladesh’s economy. The country’s readymade garments (RMG) industry has emerged as the leading export-oriented sector mainly due to the Multi-Fibre Arrangement (MFA). The MFA within its restrictive provisions, allowed a legal tool for countries to negotiate on apparel quotas which facilitated Bangladesh compared to many of the traditional apparel producing countries.
Trade liberalisation along with tariff rationalisation has opened up competitive sources of raw materials and intermediate goods essential for domestic production. Thus, it has contributed towards industrialisation, which is yet to be vigorous though. As a founder member of the WTO, Bangladesh has been continuing its effort to ease trade.
Being an LDC, Bangladesh, is enjoying market access to almost all the developed countries except the United States. Bangladesh is also getting tariff-free and some preferential market access to some of the developing countries like India and China. Although the Hong Kong declaration of the 6th WTO ministerial conference has asked full duty-free quota-free (DFQF) market access to the LDCs with the condition that countries “facing difficulties” shall provide DFQF market access for at least 97 per cent of products originating from LDCs “by 2008 or no later than the start of the implementation period”, there has not been any meaningful progress on this. The US is denying full market access to Bangladesh on the plea that the Doha round trade talk is yet to complete and so there is no binding to implement full market access facility. As a result, Bangladesh is not only deprived of duty-free access, but is also facing higher tariffs in the US market. In 2014, US has earned some $824.30 million as tariff while importing Bangladeshi products worth $5.276 billion. On average, Bangladeshi products are facing 15.6 per cent tariff. At the same time, average tariff rates in the US on imports from UK and France are 0.92 per cent and 0.96 per cent respectively.
As Bangladesh is now in the process of graduating to the level of a middle-income country, trade-driven sustainable development is more important for which one of the crucial keys to success is increased investment. Following the Bali ministerial declaration of the WTO, a global trade facilitation agreement is almost final which is believed to help reduce cross-border trade cost and encourage investment. In the final stage of negotiations, in order to set goals and targets for the SDGs, Bangladesh along with other developing countries need to push for making trade a major tool in the global development agenda for the upcoming 15 years.