Ministerial roundtable on trade and poverty in LDCs
Foreign and commonwealth office
It is a pleasure to be here today. This roundtable is an important opportunity for all of us to discuss how trade can help reduce poverty in the world's least-developed countries. It is particularly well-timed, with the UN conference on LDCs coming up in Brussels in May and with the prospect of the launch of a new WTO round in Qatar in November. Thanks are due to Clare Short for her leadership in holding this conference and for making the case for trade as a central factor in development.
Our common objective is halving the proportion of people living in extreme poverty by 2015. That is the most important of the International Development Targets agreed by the governments of the world at a series of UN conferences in the 1990s and reaffirmed in DFID's recent White Paper on International Development. It is a challenging target, and rightly so. Such extreme poverty is morally offensive in a world where so many are so rich and where the ingredients of successful development are not a mystery. But that is precisely why I believe the targets are achievable if governments put in place the right policies, nationally and internationally.
The main way the WTO can contribute to achieving the International Development Targets is by launching a new round this year. After all, our core business is trade, which is so important to development targets. By liberalising trade, we can make a huge contribution to alleviating poverty.
The multilateral trading system has probably done more to boost living standards and lift people out of poverty over the past 50 years than any other government intervention. The 17-fold rise in world trade since 1950 has gone hand-in-hand with a six-fold rise in world output. This has benefited both developed and developing countries: in both, living standards have risen three-fold. Life expectancy in developing countries has risen from 41 to 62 years, infant mortality has more than halved, while the adult literacy rate is up from 40% to 70%.
The countries that have done spectacularly well over the past half-century, such as Japan, South Korea, Taiwan and Singapore, have all been trade-oriented. The WTO Secretariat's special study on trade and poverty released last year confirmed that although, in general, living standards in developing countries are not catching up with those in developed countries, the poor countries that are catching up with rich ones are those that are open to trade; and the more open they are, the faster they are converging. Jeffrey Sachs and Andrew Warner of Harvard University have found that developing countries with open economies grew over six times faster in the 1970s and 1980s than those with closed economies. And David Dollar and Aart Kray of the World Bank, using data from 80 countries over four decades, confirm that openness boosts economic growth and that the incomes of the poor rise in line with overall growth. The message is clear: freeing trade boosts economic growth, and so helps to alleviate poverty.
Developing-county governments increasingly recognise this. Their economic policies have changed dramatically since the mid-1980s. The name of the game in trade policy has been liberalisation. Countries have realised that trade and investment, not aid, are the engines of economic growth. Average tariffs have been halved, and many non-tariff barriers swept away. Many of those reforms were bound, partially or fully, in the Uruguay Round. Although the degree of trade protection is still high in many developing countries, gross distortions in trade regimes have been greatly reduced.
In many developing countries, pro-market reforms have encouraged faster growth, diversification of exports, and more effective participation in the multilateral trading system. Excluding countries at war or in transition from communism, export growth in developing countries has risen from 4.3% a year in the 1980s to 6.4% in the 1990s. Growth in GDP per person has risen from 0.4% a year to 1.5% a year.
Even the least-developed countries are doing a bit better, though not as well as other developing countries. Excluding countries at war or in transition from communism, export growth in LDCs has risen from 2.9% a year in the 1980s to 3.2% in the 1990s. And whereas GDP per person fell by 0.6% a year in the 1980s, it rose by 0.8% a year in the 1990s. Clearly, though, we need to do better.
In order to do better, we need to launch a new WTO round this year. I know that many developing countries have argued that we cannot launch a new round until the perceived injustices of previous rounds have been dealt with. I understand their concerns. But dwelling on the perceived injustices of the past does nothing to prevent even greater injustices in future. Many developing-country governments are coming round to that view. They increasingly understand that the greatest threat to their economies is not globalisation, but marginalization. A new round is the surest way to prevent the further marginalization of LDCs from the world economy and to deal with the problems that they may have with existing WTO agreements and the way the WTO is run.
As well as the in-built agenda of agriculture and services, the new round must have implementation issues at its heart. And it should also encompass industrial tariffs, anti-dumping, and other issues that are important to developing countries.
The economic case for a new WTO round is compelling. Cutting barriers to trade in agriculture, manufacturing and services by a third would boost the world economy by $613 billion, according to a new study by Robert Stern of the University of Michigan and others. That is equivalent to adding an economy the size of Canada to the world economy. Doing away with all trade barriers would boost the world economy by nearly $1.9 trillion: the equivalent of adding two more Chinas to the world economy.
Of course, these are only estimates. Reasonable people can quibble about the exact size of the gains from a new round. But the basic message from study after study is clear: a new round brings huge benefits to all parts of the globe. For instance, a study by the Tinbergen Institute estimates that developing countries would gain $155 billion a year from further trade liberalisation. That is over three times the $43 billion they get annually in overseas aid.
It is not politically correct these days to say it. But everyone needs the US, EU and Japanese economies to grow and to be importing as well as exporting. A slow down not only boosts protectionism sentiment, where we need it least, and weakens the position of those who seek more GDP, but also has an immediate impact on developing country exports.
We have already made some progress over the past year in improving market access for least-developed countries. I am proud to say that my country, New Zealand, and also Norway, have agreed to offer full access to all LDC exports. The European Union's Everything but Arms proposal, is a valuable contribution. The US has made progressive moves, as has Japan. It is a signal to LDCs that they are listening to their concerns. I urge other rich countries and richer developing countries to do more to help LDCs reap greater benefits from the world trading system.
Much as I thank countries for these moves, I must also report that many small and vulnerable countries such as the Caribbean, lose out. They say it is taking from the poor to give to the poorer. That is why we need to approach these issues in the wider, balance context of a new round. In the absence of a round, good people will take initiatives. It is to be encouraged. But there are always exceptions.
We have also increased technical assistance to LDCs. With our limited budget and trade focus, the WTO can only contribute so much to export capacity building in LDCs. But our technical-cooperation programme is an unsung success that helps developing countries take greater advantage of trading opportunities at a tiny cost.
Another potential success is the so-called Integrated Framework, a good plan for inter-agency co-operation on trade-related technical assistance to the least-developed countries. The IF puts the country being assisted at the centre of the decision-making process with respect to the activities of the six international agencies. It is an important step towards mainstreaming trade so that it is at the heart of countries' development strategies. The IF had laid dormant for years. Now it has been reinvented. After four years of dithering, we are in a position where several countries will start to benefit from it, hopefully by the time the UN conference on LDCs meets in May. This will be a "first" among international agencies and with its success it could then be a model of co-operation that would have utility for developing countries and the smallest and most vulnerable of us.
The WTO has also held its second Geneva Week for non-resident members and observers. This consisted of briefings on work in progress, and gave non-residents an opportunity to participate in the formal work of the Organization. We are also using the Internet to keep our smaller and poorer members better informed. We have set up Internet reference centres in 78 countries. We organized a meeting of African trade ministers and officials to encourage them to play a fuller role at the WTO. The Libreville conference was attended by 42 ministers from 51 African countries, and also brought together representatives from 30 international and regional organizations, as well as the private sector. We hope to hold seminars and workshops for Caribbean Ministers and Officials, and hopefully later on for the Central American Governments as well - finance forthcoming.
All of this is good. But it goes without saying that neither the WTO alone, nor indeed trade itself, are enough to tackle poverty in LDCs. To take an extreme example, a new WTO round will do little for the Democratic Republic of Congo while it is torn apart by war. Nor will the benefits of trade be felt by the people at large if governments spend the funds on weapons or deposit them in distant bank accounts. If leaders spend more on war than education, more on the police than health, then good governance is as important as market access. But even so, we must plug on with liberalising trade in the hope that countries will sort out their other problems and thus be in a position to reap the benefits of trade, as well as in the belief that trade can help to promote peace, stability and good governance. After all, when people grow richer by exchanging goods with each other, they are less likely to fight each other or to jeopardise their trade by causing havoc. And when governments adhere to WTO rules that prescribe transparency and predictability, there is less scope for corruption.
To sum up, I urge you all to fight hard for a new WTO round, not only to help LDCs alleviate poverty, but also to benefit your own countries. Thank you.