Key Indicators and Trends in Trade Policy 2016 – G20 policies and LDCs’ export performance

During the last decade international trade has been characterized by a progressive shift in the use of trade policy instruments. Tariffs have remained substantially stable during the last few years with tariff protection remaining a critical factor only in certain sectors in limited number of markets. On the other hand, the use of regulatory measures and other non-tariff measures such as antidumping has become more widespread.

The recent years have also been characterized by movements in the exchange rates. Overall, tariffs have remained substantially stable during the last years. As of 2015, developed countries import restrictiveness is at an average of about 1.2 percent. However, import restrictiveness remained higher in many developing countries, especially in South Asia and Sub-Saharan African Countries. Although low on average, tariffs remain relatively high in some sectors. Moreover, tariff peaks are present in important sectors, including some of key interest to low income countries such as agriculture, apparel, textiles and leather products. Tariffs also remain substantial for most South-South trade.

As of 2015, international trade is increasingly subject to and influenced by a wide array of policies and instruments reaching beyond tariffs. Technical measures and requirements regulate about two-thirds of world trade, while various forms of sanitary and phytosanitary measures (SPS) are applied to almost the totality of agricultural trade. The past few years have also seen a general increase in the use of trade defence measures within the WTO framework.

In spite of the effects of the economic crisis, the process of deeper economic integration has remained strong at a regional and bilateral level, with an increasing number of preferential trade agreements (PTAs) being negotiated and implemented. PTAs increasingly address not only goods but also services and increasingly deal with rules beyond reciprocal tariff concessions to cover a wide range of behind the border issues. As of 2015, about half of world trade has occurred under some form of PTAs.

The economic turbulence of recent years has been reflected in exchange rate markets, both for developing and developed countries’ currencies. Exchange rate movements are playing an important role in shaping international trade in the last few years as they have influenced countries’ external competitiveness. In particular, 2015 saw the value of the US dollar appreciate against most major currencies.

This report is structured in two parts. The first part presents an overview of the effects of G20 policies on LDCs exports. The second part discusses trends in selected trade policy instruments including illustrative statistics. The second part is divided in five chapters: tariffs, trade agreements, non-tariff measures, trade defence measures, exchange rates and trade costs. Trade trends and statistics are provided at various levels of aggregation illustrating the use of the trade policy measures across economic sectors and geographic regions.

» Download: G20 Policies and Least Developed Countries’ Export Performance – Key Indicators and Trends in Trade Policy 2016 (PDF, 5.67 MB)

---

G20 policies and export performance of least developed countries

The Sustainable Development Goal (SDG) on strengthening the means of implementation and revitalizing the global partnership for sustainable development has reiterated the commitment to significantly increase the exports of Least Developed Countries (LDCs).

LDC exports potential depends on several factors, one of which is access to major markets.

This study provides an overview and analysis of G20 trade policies, in particular tariffs and non-tariff measures, and provides suggestions on how they could be improved to increase the export competitiveness of LDCs.

It finds that G20 tariffs remain restrictive in several sectors of importance for LDCs. More importantly, the results indicate that the G20 countries’ regulatory frameworks and the corresponding non-tariff measures (NTMs) alter relative competitiveness to the advantage of exporters that are capable of efficient compliance with NTMs, therefore penalizing exports originating in LDCs.

In terms of achieving SDG, the findings of this study indicate that tariff preferences should be seen as part of the approach to increase LDCs exports. However, tariff preferences alone are not sufficient, as they would produce meaningful effects only for a limited number of LDCs. Better market access through the facilitation of compliance with G20 regulatory frameworks would be essential to increase exports from LDCs.

The impact of providing LDCs with truly tariff-free market access to the G20 is quantified in an increase of exports of almost 10 billion US$, while eliminating the distortionary trade effects of NTMs would increase LDC exports to G20 countries by about 23 billion US$. Taken together LDC total exports would increase by almost 15 per cent.

While extending preferential schemes to cover 100 per cent of products and all G20 members would be straightforward, reducing the distortionary trade effects of NTMs requires a much more complex approach.

In this regard, further progress in Aid for Trade initiatives and increases in technical assistance programmes, both on bilateral and multilateral levels, to help minimize LDCs’ costs of compliance with NTMs would be essential to facilitate the integration of LDCs in the global economy.

Introduction

The Sustainable Development Goal (SDG) on strengthening the means of implementation and revitalizing the global partnership for sustainable development has reiterated the commitment to significantly increase the exports of Least Developed Countries (LDCs). Target 17.11 aims to double LDCs’ global export share by 2020 (Target 17.11). Cooperation in the area of trade for economic development dates back to the creation of UNCTAD in 1964 and was a major point of the WTO Doha Development Round in 2001. The Doha Round Declaration stated that a central goal of the negotiations was “to improve the trading prospects and to ensure that developing countries, and especially the least-developed among them, secure a share in the growth of world trade commensurate with the needs of their economic development”. More recently, the commitment to help LDCs with regard to market access was formally reinstated at the end of 2015 in the Tenth WTO Ministerial Conference Declaration, which stated that WTO members strongly commit to addressing the marginalization of LDCs in international trade and will contribute to improve their effective participation in the multilateral trading system. The argument behind helping LDCs to increase their exports is that a stronger integration of their economies with international markets would benefit LDCs by providing resources for facilitating the implementation of the other Sustainable Development Goals.

SDG Target 17.11 identifies a persistent problem of many of the weaker economies: the generally low level of integration with international markets. Although LDCs represent around 12 per cent of the world’s population, their exports only amount to about one per cent of global exports. Moreover, LDCs’ international integration as measured by trade over GDP is about 22 per cent, significantly below the average for developing countries of about 35 per cent. The causes behind the limited participation of LDCs in world trade are complex and related to productive capacity, trade costs, and market access. With regard to productive capacity and trade costs, LDCs’ weaker economies, domestic constraints, geographic isolation and unfavourable endowments make it relatively more difficult for them to access and effectively compete in international markets. With regard to market access, the issues are complex as well. On one hand, the international community has developed a number of initiatives facilitating market access for LDCs, so as to better integrate them in the international trading system. On the other hand, market access is increasingly determined by regulatory and technical requirements including those stemming from non-trade objectives related to health and environmental protection (Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT)) which may impose an additional burden on LDCs.

In terms of achieving SDG Target 17.11, the findings of this study indicate that LDCs would make further gains if preferential schemes were extended to truly cover 100 per cent of products and all G20 members. However, preferential schemes alone would produce meaningful effects only for a limited number of LDCs. Better market access from the facilitation of compliance with G20 regulatory frameworks would be essential to increase exports from LDCs. The analysis of this study quantifies that the exports from LDCs to the G20 would increase by about 10 billion US$ if preferential tariff schemes were extended to cover 100 per cent of exports from LDCs. With regard to the regulatory framework, LDC exports to G20 countries would increase by about 23 billion US$, equivalent to about a 10 per cent increase if LDC exporters were able to comply with NTMs as well as non-LDC exporters. Taken together, if G20 countries were to fully liberalize market access for LDCs and if the distortionary effect of NTMs was eliminated, LDC total exports would increase by almost 15 per cent.

LDCs’ trade performance

The goal of doubling LDCs’ share of global exports by 2020 is ambitious. Although LDC exports have substantially increased from about 83 billion in 2005 to about 220 billion in 2015, their share in global exports increased only from about 0.8 per cent to about 1.2 per cent during the same period.

Doubling this number in less than 5 years would require a strong commitment both with regard to addressing productive capacity constraints and facilitating market access for LDC exports. Abstracting from productive capacity, the importance of market access is emphasized by the statistics showing LDCs’ relatively low level of export over GDP ratio. In contrast with other developing countries, LDCs generally trade much less than the size of their economy would suggest. Therefore, the doubling of the LDCs’ share in world trade has to result not only from increasing productive capacity but also from exporting a higher share of their production. Increasing LDCs’ export performance on a permanent basis has proven very difficult because of their fragile economies and their over-reliance on commodities. During the past 10 years LDCs’ export over GDP ratios have been oscillating between 22 and 33 per cent. Since 2011 the ratio has declined and as 2015 it is about 22 per cent.

The pattern of weak international integration in terms of exports is widespread across LDCs, although with some differences. Although some LDCs present an export over GDP ratio larger than that of developing countries as a group, the majority of LDCs have an export over GDP ratio which is less than 20 per cent. Moreover, for a substantial number of LDCs, their export over GDP ratio has actually declined since 2011.

Improving the economic integration of LDCs with the rest of the world depends on enhancing and benefiting from market access opportunities, especially in relation to the major economies. Better market access improves countries’ competitiveness and leads to export diversification both in new markets and new products. In this regard, policies regulating market access in G20 countries are of fundamental importance as these markets account for about 85 per cent of world GDP and represent more than 80 per cent of LDC exports Among the G20 markets, China, the European Union and the United States are of major importance as they alone represent about 65 per cent of LDC exports. An increase in LDC exports both to these three major economies and to other G20 countries could make an important contribution to the target of doubling the share of LDCs in world exports by 2020.

Sustainably improving LDCs’ weak export performance requires going beyond export values and addressing export diversification. Although there is some heterogeneity, many LDC exports remain concentrated in a few sectors, largely commodities related to natural resources.

The remaining exports to G20 are largely concentrated in agriculture (about 15 billion US$) and textile and apparel (for about 40 billion US$). Moreover, LDCs tend to be specialized in their exports. This is evident when comparing the export composition of LDCs in different country groups. 75 per cent of exports of the group comprising African LDCs and Haiti are related to natural resources, with oil contributing to about 70 per cent. On the other hand Asian LDC exports are relatively more diversified but still very concentrated in textiles and apparel (about 54 per cent).

G20 trade policy and LDCs

Most of the G20 economies joined the long trend of progressive liberalization of international trade. Such liberalization has greatly improved market access to many of the G20 countries, especially in relation to tariffs. Moreover, the proliferation of trade agreements, many of which involve G20 countries, further liberalized market access, although in a more selective manner. Still, while G20 markets are now more open in the traditional sense, market access has become increasingly regulated by other types of more subtle regulatory measures. These trends had positive and negative implications of LDCs. While tariffs cuts further liberalized market access, they also resulted in preference erosion in markets which were already providing LDCs with forms of preferential access. The implications related to the wider use of regulatory measures are more complex, as these measures can a produce substantial distortionary trade bias against LDCs.

The international community generally recognizes LDCs’ trade constraints and therefore provides LDC exporters with mechanisms which facilitate trade, or at least do not impose additional burdens. Trade arrangements differentiating LDCs from the rest of developing countries exist both at the multilateral level, as well as at the bilateral level. With regard to the G20 countries, their policies try to facilitate LDCs market access both by providing tariff preferences and by facilitating LDCs trade with regard to forms of NTMs (e.g. quotas). The mechanisms through which more advanced economies aim to provide LDCs with a policy driven competitive advantage take the form duty-free quota-free access, broader lists of eligible products, softer rules of origins, Aid for Trade, and technical facilitation programs to reduce trade costs and boost productive capacity so as to ultimately increase LDCs’ overall competitiveness.

The purpose of studies under the Research Study Series is to analyse policy issues and to stimulate discussions in the area of international trade and development. This paper represents the personal views of the authors only and not the views of the UNCTAD secretariat or its member States.