Nanyuki, Kenya — 18-21 September 2003


he multilateral trading system: Why East Africa must remain engaged

Second East African Business Summit

Keynote address by
Dr. Kipkorir Aly Azad Rana, Deputy Director-General
World Trade Organization
Geneva, Switzerland

Your Excellencies, Distinguished Business Leaders, Ladies and Gentlemen,

It is an honour and privilege for me to participate in this Summit and to be able to share with you some views on the multilateral trading system and the opportunities and challenges for East Africa of intensified engagement at the WTO. I am sure you will all agree that this is a highly topical subject, given the news earlier this week of the failure of trade ministers in Cancún, Mexico, to reach agreement on various elements of the Doha multilateral trade negotiations.

But let me start by expressing my appreciation to the Convenors of the East African Business Summit, and in particular the Chairman of the Convening Committee Wilfred Kiboro, for having me join you in this important event. I would also like to thank our hosts for their warm welcome and extend my congratulations to all those responsible for making this impressive gathering possible.

I have just returned from the Cancún Ministerial Conference. Despite efforts on all sides, Ministers were unable to reach consensus on how to carry our work forward in key areas, including agriculture. You will no doubt have seen much press comment on the meeting and its disappointing outcome. Positions were just too far apart on key issues. One reason for a lack of agreement was that a large group of developing countries, including many African countries, felt that many of the developed countries were unwilling to do enough to free up agriculture trade, in particular through the reduction of subsidies. Another source of developing country concern were the proposals for extending negotiations to investment, competition policy, transparency in government procurement, and trade facilitation. For their part, developed countries argued that the developing countries should be willing to do more to open their own markets. Lest it should seem that I am suggesting that all the WTO's difficulties reside in relations between the North and the South, let me hasten to point out that this is not the case. Important differences exist among developed countries and among developing countries across a range of issues, including those I have just mentioned.

Some commentators have given the impression that the failure of Ministers to agree in Cancún should be seen as good news. I find this attitude very wrong-headed, betraying a lack of understanding of what the multilateral trading system does and how it works. Stalemate in the field of international trade relations simply translates into foregone opportunities – opportunities to create a more vibrant and relevant trading system at the service of all nations. For us in Africa, this means fewer development opportunities. For you, in particular, it means a less secure business environment. It is my firm conviction that getting things done in the WTO – and the sooner the better will foster the kind of enabling business environment that you are aspiring to and that you deserve in your role as key contributors to the economic progress of our countries.

Africa needs to reap the economic benefits that trade liberalisation can bring. As an East African, it is a source of great concern to me personally that from 1990 to present Africa's share in world trade has further declined by almost one per cent. Now is the time to reverse that trend. As this event demonstrates, the East African business community is ready and able to be a frontrunner in realizing this continent's vision of a brighter economic future. Your willingness to act is praiseworthy and the theme of this conference could not be more topical. We need public-private interaction to ensure that the Doha Development Agenda picks up again and meets your development expectations. Negotiators need your support and input on how the multilateral trading system can best help unlock Africa's huge economic potential.

The contribution of trade to growth and development is widely acknowledged. It looms large in many of the goals and targets of the Millennium Declaration. For instance, the 18th target relates to the role of trade and the multilateral trading system in spreading the benefits of new technologies. A crucial function is thereby assigned to the private sector. Business needs to seize the opportunities offered by further trade liberalization. On the export side, the reduction of trade barriers extends the market for individual firms, particularly for those located in small countries. Access to a larger market makes it easier for a company to reach a critical mass of demand, allowing it to exploit economies of scale and further specialize in what it can do best. As regards imports, when manufacturers have access to a broad variety of specialized inputs on international markets, their productivity improves, their costs are reduced and their output increases. In Tanzania, for example, we witness a steadily narrowing current account deficit despite increased imports. Why is that? Because significant part of the imports are investment-related and go into productive activities that boost growth and total exports to an even larger degree.

I am pleased to note that exports continue to be the main engine of growth in several East African economies. Kenya registered an impressive 5.8 per cent expansion of exports in 2002. Yet, it is still well below its potential. Recent gains in sugar, fruits and vegetables can be further increased. The same is true for Uganda, which saw spectacular growth in horticultural and fish exports. East African businesses have a strong stake in developments at the WTO in these and other areas, many of which remain heavily subsidized or severely restricted in terms of market access.

A strong call for action in addressing subsidy issues in cotton was made earlier this year by Benin, Burkina Faso, Mali and Chad. This action should serve as an example of how a group of small and poor developing countries did their homework and presented a solid case that simply could not be ignored. West African negotiators put the spotlight, before and at Cancún, on cotton subsidies leading to overproduction by less efficient farmers in rich countries and depressing global market prices. I have no doubt that the affected countries are disappointed that the lack of results in Cancún means no progress here either. The countries who brought this issue to the table do not have a broad range of export possibilities to choose from, but in cotton, they produce high quality merchandise at competitive prices. In recognition of the benefits of export-led growth for development, they have turned, at the highest level, to the WTO. They do not ask for aid, which is the World Bank's remit, nor do they make political appeals that belong to the United Nations. They have just asked that WTO rules and disciplines apply also in sectors of interest to the poor — that a fair and market —oriented system be established in agriculture and that rich countries' wasteful export and production subsidies be abolished and cease to undermine their comparative advantage.

The list of products where trade distortions take away the competitive advantage of poorer countries is long. And East Africa has a considerable number of items on this list, not only in terms of actual, but also with regard to potential exports. The reason why cotton production in Kenya has never really taken off has a lot to do with global trade distortions. It is true that some East African products do not compete favourably in the world market also because of cost disadvantages stemming from elevated customs duties on inputs. This is why higher protection — and the export bias and narrow focus on domestic markets it entails — are not the answer.

Further negotiating engagement is needed if developing countries are serious about moving into the downstream activities based on raw materials. Higher value-added production in many areas is currently penalized everywhere in the world through escalating tariff structures. The removal of trade barriers and distortions both in the agricultural and industrial sectors are necessary to boost diversification efforts. Here in East Africa, you have ventured into many new products and markets, away from coffee and other less profitable crops and primary products. You have taken considerable entrepreneurial risks. These will only be rewarded once you are in a position to produce at a certain scale. For this, you need a larger, a global market. The fate of whether or not output growth and diversification in East Africa can be sustained lies in our determination to seek the integration with the rest of the world. To reduce entrepreneurial risks and increase rates of return, East African businessmen need the security and predictability of a global framework of market access commitments and trade rules that only the WTO can provide. This is what is being jeopardized when ministers fail to agree.

But, as you state yourself upfront in the Agenda East Africa document, “trade begins at home”. Two key issues you identify are infrastructure and governance. An open trade regime can help on both accounts. Kenya's successful cement industry is inhibited by high energy costs that compare unfavourably to Uganda, where industry pays one third less, and even worse to South Africa, where companies have a cost advantage of 60 to 70 per cent over Kenya. Key managers press government to eliminate tariffs on equipment needed for power generation and transmission to reduce the unsustainably high cost of doing business. Everywhere in East Africa, uncompetitive cost structures exist, especially under monopolistic conditions, such as is too often the case in the areas of telecommunications and transport. Venture capital is not easily obtained and business insurance is often said to be given on unfair terms and on the basis of arbitrary procedures. The liberalization of goods and services is a crucial ingredient if the private sector is to flourish. For many producers, the inputs and business services needed to expand and venture into new markets may be inadequate, too expensive or simply not available. Tanzania's growth is mainly driven by agriculture; however, for the past years, it has been struggling to grow by more than 5 per cent, suffering from structural constraints that range from weak marketing and poor rural infrastructure to a lack of credit and agricultural inputs.

If your Vision 2020 of moving into the higher value-added stages of production is to come true, East African firms must become better integrated with the world economy and international production networks. Transaction costs need to be kept low and timely delivery guaranteed. In order for that to happen, tariffs, bureaucracy and red-tape that impede the flow of goods and services must be cut. Only then will your companies be able to gain access to long-term sales contracts, technology transfer, exchange of information and staff training, and only then will East Africa's industrial structure be upgraded. Related to this, in Agenda East Africa, you also pledge to give support to the fight against corruption in the interest of good governance. The liberalization of trade is a step in the right direction. There is empirical evidence that more open economies exercise stricter control over corruption than less open ones. It can readily be argued that in markets with low levels of competition rent-seeking is relatively more rewarding. Illicit payments and the waste of human and financial resources are likely to be substantial. To the extent that greater openness to trade and investment engenders competition, corruption can be expected to fall.

I have outlined some of the main reasons why I believe that you as East African business leaders have a strong interest in urging your governments to pursue open trade policies domestically and elsewhere. But why engage in the multilateral trading system with its difficult, complex and lengthy procedures and negotiations? Why not move ahead unilaterally or regionally? Why not engage only in some areas to the exclusion of others? Well, while countries benefit from liberalizing themselves, they also gain from the liberalization of others. Governments have almost always seen an advantage in moving together in opening up their markets to import competition. Joint and mutually beneficial action on the liberalization front can help all governments to resist protectionist pressures, which can become intense in times of economic difficulty, in industrialized as well as developing countries. Making binding commitments at a multilateral level means that arbitrariness or unrelated elements of conditionality and discrimination are removed from the picture that would otherwise be all too easily leveraged against the weaker players in international trade.

Regional trade agreements can bring economic benefits and bolster international cooperation. They are a complement, but not a substitute for multilateral liberalization. It is good that Kenya's cement exports have recently benefited from trade liberalization with the East African Community and COMESA. But regional agreements must be carefully designed and managed if they are not to result in mutually inconsistent provisions that ultimately increase the costs of doing business across borders and raise uncertainty as regards the applicable rules. If only partial liberalization is pursued, as is the case in some bilateral agreements, we know that these exclude so-called “sensitive” areas relating more often than not to sectors of particular interest to developing countries, most notably agriculture. Any deal in agriculture and many other areas that may matter to you will only be possibly in a multilateral setting. It is imperative that your governments stay engaged in the multilateral trading system and help find a balance that is beneficial to all participants. The WTO must be encompassing enough to address the increasingly wide set of issues that are relevant to international economic relations. Without this, the institution will become less relevant to an important segment of the more economically advanced membership whose cooperation is needed. Experience tells us that on a bilateral basis, your negotiation leverage dwindles and you will find it much harder to advance the issues of real concern to your countries than in a multilateral environment.

At the same time, the multilateral trading system has to respond effectively to the immediate development needs of developing countries. This may call for selective special and differential treatment. East African countries have been a vocal proponent in this regard, and rightly so, but these endeavours should not be guided by the assumption that disengagement and minimal commitments are the best recipe for supporting the development process through the WTO. Rather than that, effective special and differential treatment provisions that are acceptable to the whole membership require a judicious blend of flexibility and discipline. Provisions must be focused and responsive to real development needs, they must deal with policy design and timing questions. This means that solid analysis of the real nature of development challenges should take precedence over politically-driven assertions and an attitude of symbolism.

I would therefore like to invite you again to impress upon your governments to maintain and, if possible, upgrade their level of engagement at the WTO. I know that your governments are stretched financially and in terms of man-power. Kenya, Tanzania and Uganda have all been beneficiaries of the Joint Integrated Technical Assistance Programme (JITAP), a collaborative effort by the WTO, UNCTAD and the International Trade Centre. Various forms of Inter-Institutional Committees have been created in beneficiary countries, which have provided a coordinating mechanism for all national stakeholders to hold dialogues on trade and trade policy and prepare for WTO negotiations. Tanzania, in its respective Committee under the JITAP framework, undertook pioneering work on “Negotiating Strategies for Kenya, United Republic of Tanzania and Uganda in Multilateral Trade Negotiations.” Such initiatives point in the right direction of strengthening East Africa's unity on the many issues of mutual interest. The East African Community has plenty of common cause to speak with one voice, table joint proposals and exercise a maximum of negotiating clout. Governments should also consider putting in place ambassadors in Geneva who are exclusively in charge of WTO issues and supported by well-equipped teams of trade experts.

WTO technical assistance is heavily geared towards building the necessary human capital. East Africa was the birthplace of one of our newest and most successful initiatives. Three-month intensive Trade Policy Courses, which involve African academics and practitioners with a view to building local capacity for analysis, are held in Kenya for English-speaking African Country officials. Many other initiatives, such as joint research projects with African think tanks and Ph.D. mentor programmes, are on their way. All our efforts must be measured against how effectively the WTO transfers knowledge and skills on a durable basis. We appreciate that your countries may also be preoccupied with supply-side constraints. We are for this reason active in forging effective partnerships with relevant agencies that provide trade-related support that the WTO is not equipped to deliver.

You are business leaders, and let me finish by talking money to you. There are various estimates of the potential economic benefits of the Doha Development Agenda. Such numbers cannot be taken at face value and have to be handled with care. But one thing is common to all: Developing countries can gain from further multilateral trade liberalization a multiple of the amount needed to achieve, for instance, the core UN Millennium Development Goal of universal primary education, estimated at US$10 billion per year. You know this. I can clearly sense your desire as business leaders to take your share of responsibility for East Africa's development process. I fully share your vision of stable, peaceful, prosperous and dynamic societies in our countries and I support the agenda you have laid out to make it happen. I hope that despite the recent setback at Cancún, you will continue to engage, and persuade your governments to engage, and ensure realization of the opportunities offered through a genuine development agenda at the multilateral level. The Doha Development Agenda is not dead. Let us breathe new life into it.

Thank you.