Anil K Kanungo: Not just market access

The real issue constraining LDC exports is equally about their inability to produce marketable goods and services.

India's current decision to allow phased duty-free-quota-free market access to 50 Least Developed Countries (LDCs) from Africa and Asia looks very much a timely gesture of advancing the promises made by developing countries like India at the Hong Kong Ministerial in 2005. Though the government has reserved some discretion in anticipation of a fear of import surge, the decision to allow such market access to LDCs is heralded as an important beginning for G-20. China, another important member of G-20, has already agreed to unilaterally allow duty-free-quota-free imports of some goods from 39 LDCs with whom it has established bilateral relations. India too would like to stand up for all these poorer nations.

More importantly, at a time when the ongoing Doha round of negotiations is unable to make any headway, such an initiative becomes a useful instrument to carry forward the unity and togetherness of these countries. It is this unity which plays an important role in WTO negotiations as striking a deal at WTO is sometimes all about the numbers. A number of countries, therefore, devote energy and spend capital to remain engaged in these trade negotiations as they fully understand the growing importance of international trade as a viable factor in national development.

To that extent, LDCs have realised the significance of international trade as a powerful mechanism for economic development and reducing poverty. Their increasing participation in the form of G-90 and G-110 in the ongoing Doha round indicates that they are keen to advance the objectives of the Doha Development Agenda, which for the first time put the developmental concerns of these countries at the heart of the work programme. In half-a-decade of negotiations since 2001, such concerns of the LDCs haven't been adequately addressed to secure a share of world trade commensurate with their needs of economic development. Though the EU, since March 2001, has initiated a preferential arrangement with LDCs called EBA (Everything But Arms) in which it agreed to provide duty-free-quota-free market access to all these countries, yet the products originating from LDCs haven't found a big market in EU member countries. This is because of the various constraints imposed by the EU on LDCs which are in the nature of non-tariff barriers such as not meeting the criteria of the rules of origin, standards and administrative co-operation.

The LDCs' current share of world trade is minuscule, hovering around 0.54 per cent. Though they have performed marginally better in their export growth rate as a group in the '90s and continued with that rate till 2004, individual countries are still suffering from acute poverty and underdevelopment. It's only countries like Angola and Bangladesh that have managed to register a high export growth, accounting for more than 35 per cent of the total LDC exports in 2004. Their success has been due to their individual capabilities and capacities to export in large measures two important commodities, namely oil for Angola and textiles for Bangladesh. The growing demand for oil and quality low-cost textile products has helped these countries to experience a real surge in their export trade. As a result, the trade gains have been unevenly distributed among the LDCs.

LDCs today are unable to benefit from the global trading system. Apart from it being asymmetrical (due to farm subsidies provided by the US and EU), LDCs seriously lack market access and productive capacities, the two key components for attaining trade growth.

The Hong Kong Ministerial in 2005 somewhat struck a deal whereby developed and developing countries agreed to provide duty-free-quota-free market access to all products originating from LDCs. But the subsequent restriction by developed countries in the Final Declaration to allow duty-free-quota-free access to 97 per cent of products jeopardised further the growth aspirations of these countries. LDCs are of the opinion that with a 3 per cent exclusion, products of their export interest such as textiles for Bangladesh and Cambodia will be seriously affected. Hence, chances of increasing their world share get reduced.

In addition, global markets today are characterised by an increasing share of services and high technology products, for which LDCs are ill-equipped. In contrast, their exports are dominated by primary products such as fuel, farm products and ores, accounting for 60 per cent of their total exports. In such a highly demand-induced market of services and advanced technology products, the supply side constraints of LDCs are clearly visible. It is these constraints that diminish their export prospects.

The issue, therefore, is not of market access alone, rather it is the LDCs' inability to produce marketable goods and services. This lack of capability and capacity needs to be addressed in a significant way through various measures such as investments, technology transfer, capacity building, skilled training and education. India currently has core competence in these services. Time for it to gain a lot from this huge market.

The author is with the Indian Institute of Foreign Trade, New Delhi