Trade’s place in the Sustainable Development Goals

Non-tariff barriers and trade restrictions in developing countries did not figure much in the Millennium Development Goals and this continues to be the case in discussions on the United Nations’ Sustainable Development Goals.

The Open Working Group was formed in 2013 out of a United Nations Conference on Sustainable Development (Rio+20) mandate to discuss possible Sustainable Development Goals (SDGs) to shape the post-2015 development agenda. Its 2014 proposal includes calls for a rulesbased, open, multilateral trading system; improved Aid for Trade support; better regional and trans-border infrastructure to promote regional connectivity; and lowering tariff barriers for exports from developing countries, including duty-free, quota-free (DFQF) market access for least developed countries (LDCs).

There is little new in the proposal relative to the approach taken under the Millennium Development Goals (MDGs). The only concrete trade performance target proposed, a doubling the global share of LDC exports by 2020, is already part of the Istanbul Programme of Action.

POSSIBLE WEAKNESSES IN PROPOSED TRADE OBJECTIVES

The suggested trade objectives have both conceptual and operational weaknesses. The mercantilist focus on exports as opposed to trade (both exports and imports) disregards that - in practice - lack of trade competitiveness is largely the result of domestic policies. As firms will generally benefit from access to imported inputs that they use to produce exports or to sell products that compete with imports, this bias may misdirect policy attention towards interventions that will have only limited benefits.

Moreover, LDCs already have DFQF access to many high-income markets. There are important exceptions, such as Bangladeshi exports to the United States of America, but the large emerging economies can do more in this area. However, research shows that the ‘binding market access constraints’ are often non-tariff measures (NTMs) including restrictive rules of origin. What matters then is helping firms overcome applicable NTMs in the relevant markets, both at home and abroad, and more generally meant to lower their trade costs.

The experience of East Asian countries that have successfully used trade to sustain high rates of economic growth over a long period illustrates the high payoffs to lowering trade and investment barriers and more generally in reducing trade costs. Market access constraints in export markets are not necessarily the binding constraint on trade expansion. In practice, autonomous reforms drive economic development.

While trade agreements can help – especially for nations that are land-locked and depend on neighbouring countries with sea ports – the key need is to identify the primary sources of trade costs, determine what governments should do to address them and decide where others can or should help.

A BETTER GOAL: LOWERING TRADE COSTS

These observations suggest consideration be given to including a specific trade cost reduction target as part of the post-2015 agenda. Non-tariff barriers and services trade restrictions in developing countries and inefficient border management and related sources of real trade costs did not figure much in the MDGs and this continues to be the case in the discussions on the post-2015 SDGs.

Given the extant research on the links between trade expansion and growth, the importance of trade costs as an impediment to the operation of international supply chains, and the role that services play in overall trade costs (transport and logistics services, related infrastructure), policy attention arguably should focus on lowering trade costs. One option would be to set a specific trade cost reduction goal (for example, reduce trade costs for firms operating in lowincome countries by an agreed amount by 2020).

There is a precedent for adopting a trade cost target: Asia-Pacific Economic Cooperation (APEC) member governments agreed to a common trade facilitation performance target in two consecutive action plans starting in 2001, setting a goal of reducing trade costs by 10% over a 10-year period on a regional basis. The global community could emulate this initiative, building on and learning from the APEC experience.

However, a key requirement would be to agree on how to measure trade costs and what data and indicators to use. This requires research to develop alternative options that can inform a decision. The aim should be to determine how international data on trade costs and related indicators, compiled by international organizations on a country-by-country basis, can be used to establish a meaningful baseline and can be tracked over time.

A global commitment to a numerical trade-cost reduction target would provide a concrete focal point for both national action and international cooperation. It would send an important signal to the international business community that leaders will pursue trade-facilitation initiatives.

The World Trade Organization’s Trade Facilitation Agreement is an important step forward in this regard, but it only deals with one dimension. There are many reasons why trade costs may be high, including domestic policies, non-tariff measures at home and abroad, weaknesses in transport and logistics, restrictive services trade and general investment policies.

A trade cost reduction target leaves it to governments working with stakeholders to determine how best to achieve the target and which elements should be prioritized. In the process it will help incentivize the relevant international organizations to focus more of their activities on assisting governments to reduce trade costs.