ECOSOC FfD Forum 2024: Panel Discussion 5 on International Trade as an Engine for Development
24 April 2024
Excellency, Mr. Akan Rakhmetullin, Vice-President of ECOSOC and Permanent Representative of Kazakhstan;
Dear Cindy Rodriguez Mendoza, Assistant Secretary, International Cooperation of Honduras;
Dear Maira Myrogianni, Secretary General for International Economic Affair, Greece;
Your Excellency, Sheikh Mohammed Belal, Managing Director of the Common Fund for Commodities;
Excellencies,
Ladies and Gentlemen,
International trade has been for many years an engine for development. But since the financial crisis in 2008, this engine has lost steam: World trade growth has slowed down and trade openness declined.
There are several reasons behind these trends:
The expansion of global value chains has slowed down due to trade policy tensions, the disruptions caused by the COVID-19 pandemic and geopolitical tensions like the war in Ukraine. These factors have led to a de-risking of GVCs, and national strategies prioritizing domestic consumption and developing domestic suppliers.
And more recently, we have observed another concerning trend: Fragmentation.
Clear signs of so-called “friendshoring” have shown up since the second half of 2022. This entails an increase in trade flows between countries politically close.
This fragmentation can come at a very high price. The IMF and the WTO estimate potential losses ranging between 5 to 7 per cent of global GDP. This is like erasing the economy of India and Italy from the world.
Trade through GVCs had offered developing countries the opportunity to expand their trade, access new markets and learn. Fragmentation can reduce these opportunities.
Moreover, fragmentation erodes the international cooperation we need to address our global challenges. When national security and geopolitical considerations move to the center of trade policy, multilateralism or the development agenda take a toll.
Developing countries risk being caught in the crossfire of trade disputes or face growing pressure to take sides in economic conflicts. Nobody will win from it.
But let me now focus on three points how the current trade landscape could offer opportunities for developing countries.
The FIRST is related to technology and digitalization.
They have had a strong impact on trade in the last two decades. But we know that digital trade has particularly benefited countries with strong connections to networks, very often developed economies. We also know that digital gaps are deep, between and within countries, and between genders.
We need to ensure that developing countries have the skills, infrastructure and regulatory frameworks to benefit from digitalization and technological advances. This requires national policies to build the required skills and infrastructure but also international cooperation, such as in competition law enforcement, to ensure that digital markets are fair.
TWO – Opportunities of South-South trade.
South-South trade has been growing fast, in fact faster than the world average. Today, South-South trade accounts for 54 per cent of developing countries’ exports, and most of such trade takes place in Asia. This means that the global south is trading more with itself.
The Global System of Trade Preferences among Developing Countries – the so-called GSTP – is a big opportunity to further enhance South-South trade. With its 42 members, it represents a 16 trillion US dollar market with a four billion population.
Beyond expanding trade, South-South trade can foster better trade. South-South trade enhances export diversification and structural transformation in developing countries as it tends to be of higher value added and thus offers more opportunities for upgrading, learning and expansion.
And THREE – Opportunities in commodity-dependent countries.
Two thirds of developing countries remain commodity dependent, relying on primary goods for at least 60% of their exports. These countries struggle to diversify their exports and economies and are exposed to high price volatility.
This group includes many least developed countries as well as small island developing States and landlocked developing countries who remain largely marginalized in international trade.
Also, there is a high concentration of who gains from commodity exports within countries. In several countries, a single firm accounts for more than 50 per cent of a country’s exports.
Nonetheless, resource rich developing countries have opportunities for boosting diversification and improving their position in international markets.
For example, through their wealth of critical minerals which are needed for the energy transition.
Several of these countries also have untapped potential in renewable energy sources like solar and wind to explore new energy markets and green products.
To ensure that the wealth in their natural resources, indeed becomes an opportunity, countries need strategies to enhance local value addition, especially in downstream activities.
Countries need to invest in their productive capacities and technological capabilities to climb value chains in existing sectors and move to new industries with higher value added. Industrial and innovation policy can be valuable tools. The revenues generated by their resource wealth also offer opportunities to strengthen their competitiveness and to invest in accompanying policies to ensure that diversification leads to broader benefits.
Before I stop, I want to invite you to the high-level dialogue on commodity markets that we are organizing with the President of the General Assembly this Friday. The event will discuss many of these issues in greater detail.
Thank you for your attention.
