Global financial crisis, Doha and least-developed countries

Your Excellency Prime Minister of Cambodia,
Honorable ministers,

We are meeting here today at a momentous period in the global economy. We are seeing an unprecedented financial crisis with an epicentre in the United States but now spreading to the real economy around the world.

I would like to express appreciation to my good friend Kandeh Yumkella for having asked the WTO to co-organise this conference. As I have said on previous occasions, the WTO and UNIDO are two sides of the same coin. Therefore, close cooperation between us should not come as a surprise to anyone; it should be expected.

The theme for this conference — Aid for Trade: Industrial Agenda for LDCs — is timely as the ability of least-developed countries (LDCs) to get by during this crisis will ultimately depend on their possibilities as well as their capacities to produce and export in the real economy. In this context, Aid for Trade can and must play a key role in assisting LDCs to continue to use trade as an engine for development and poverty reduction.

The current financial crisis will no doubt have profound, and possibly prolonged effects on the LDCs, whose recent good economic performance has been heavily dependent on external factors. First, LDCs' exports — mainly oil, minerals, agricultural commodities, textiles and clothing, as well as tourism — are likely to see a substantial reduction as global demand declines. Second, external sources of funds such as foreign direct investment or remittances which greatly contribute to the economies of LDCs are also likely to drop. It is also important to bear in mind that this current financial crisis comes on the heels of the food and fuel price shock, which recently hit most LDCs in different but negative ways.

As a result, medium-term growth prospects for the LDCs are grim. LDCs, which as a group registered higher than world average growth rates of over 7 per cent in 2005 and 2006, are likely to see a slowdown this year. Growth for Sub-Saharan Africa is projected to slow down from 6.8 per cent in 2007 to 5.5 per cent in 2008, and to 5.1 per cent in 2009. The average growth rate among Asian developing countries is also expected to drop from 10 per cent in 2007 to 8.3 per cent in 2008 and 7.1 per cent in 2009.

There is a real danger that the progress which has been made in reducing poverty in LDCs may be undermined. It is therefore critical and urgent that we consider ways in which we can mitigate the effects of this worsening global economic environment on developing countries, LDCs in particular.

The world is today more globalized than it was during past economic crises. There is a strong sense that we are all in the same boat, and that we must act and coordinate together if we are to lift ourselves. There is also a growing consensus that only multilateral solutions can address the challenges facing the global economy today and prevent sudden and disorderly market reactions from creating pressure for protectionist and inward-looking policies, which would severely and disproportionately affect the poorest.

How can the WTO contribute in today's tumultuous times? The multilateral trading system is first and foremost an “insurance policy” against protectionism. By investing in the multilateral trading system, strengthening it and increasing its robustness, what the international community is in fact investing in is an insurance policy against the deterioration of market conditions, such as protectionism. And when the world decides to turn itself towards protectionism, the most vulnerable would again suffer the most, as they will be left with no means to resort to, especially after the initial squeezes of a general economic slowdown. In other words, the WTO insurance policy is even more indispensable for the poor at this juncture.

An important issue we are also following closely, because of its potential adverse impact on developing countries, is the availability and affordability of import and export finance. The meeting that I chaired last week, with representatives of private banks, international financial institutions and export credit agencies, confirmed that the market for trade finance has severely deteriorated over the last six months, and particularly since September. Two key causes were identified. One is a shortage of liquidity to finance trade credits. The second is a general re-assessment of risks caused as much by the financial crisis as by the slowing down of the world economy, and it is at this point that these two cycles interact with one another. These problems are being felt most acutely by traders and banks in the emerging market economies.

Following up on this meeting, some steps were taken to respond to the situation. The World Bank has announced a tripling of the ceiling, to $3 billion, of the trade finance guarantees available under the IFC's trade finance facilitation programme. This is Aid for Trade in action. The Berne Union, which re-groups export credit agencies, has informed us that export credit agencies have been stepping in much more actively in recent months. Collectively, they have increased their business by more than 30 per cent in the last 12 months, with an acceleration since the summer. The message from other regional development banks is that they too could do much more to respond in the market if their Executive Boards would also raise their ceilings on this kind of financing activity. It is therefore important that all of us press hard to ensure that priority is accorded to trade finance over the coming weeks, as a sort of lifeline for the economic activity in many of your countries.

Turning to the Doha Round negotiations, we all saw the strong political impetus provided by leaders meeting last weekend in Washington, when they instructed their negotiators to reach “modalities” in agriculture and industry by the end of the year.

LDCs have a lot to gain from this negotiation, whether in agriculture, industry or services. The consensus reached at the WTO Ministerial Conference in Hong Kong in December 2005 to provide duty-free and quota-free (DFQF) market access to at least 97 per cent of tariff lines for products originating from LDCs provides a significant opportunity for LDCs to expand their exports. The developed countries' harmful agricultural subsidies would be seriously disciplined, with the worst kinds of subsidies being slashed by up to 80 per cent. This is particularly important for the cotton sector, on which many LDC economies depend.

We have also progressed in defining specific LDC modalities on trade in services.

There is also the area of trade facilitation, which has the potential to reduce the cost of trading by cutting customs red tape and streamlining customs procedures. For many of you who are landlocked this is good news.

These are only a few of the many elements of a final Doha Development package that are already on the table following seven years of intensive negotiations. But they will not materialize unless we conclude these negotiations. And this conclusion will not happen without crossing the gateway of what we call “modalities” in our jargon. Hence the importance of the signal given by G20 leaders last weekend.

But while the Doha Development Round can generate new trading opportunities, they will not be sufficient for LDCs to fully take advantage of the multilateral trading system. We need Aid for Trade as a strong complement which can help translate the potential of the Doha Round into a reality. The Integrated Framework, which is a specific Aid for Trade initiative for LDCs, offers a most concrete means to help the poorest countries build trade capacity.

There is a powerful synergy between the Doha Round and the Aid for Trade agenda: improved market access and fairer trade rules on the one hand; increased international support for trade-related capacity building on the other hand.

The first Aid for Trade Global Review, held last year, produced a fascinating insight into the potential that Aid for Trade has to boost productive capacity-building in developing and least-developed countries and help them to make a real difference to their trade performance. This first Global Review also validated the decision to move the Aid for Trade work progamme up to the next level, from a general, awareness-raising exercise to a focused effort by trade, finance and development officials from member governments and their international agencies, such as UNIDO, to work together on undertaking trade-related capacity-building projects. We need to move from the initial needs-assessment and design stage to the final financing and implementation stage where it will start to realise the impact that we are looking for on trade and development.

This year, we have two main objectives in mind for continuing to develop the Aid for Trade initiative. The first one is to seek implementation of trade-related capacity-building projects on the ground, both at national and at sub-regional level. This work will feed into the next Global Review, scheduled for mid-2009, to focus on the impact that Aid for Trade projects are having on the development objectives of the countries concerned. We are selecting case studies from all regions of the world, assisted by our colleagues in the regional development banks and regional economic communities who have the hands-on expertise in dealing with project design and financing.

The second one, which is closely linked to this, is to improve monitoring and evaluating Aid for Trade. We will be devoting one session on this issue tomorrow morning. We should develop some key indicators that will provide consistent benchmarks against which you can measure progress from year to year, while doing justice to the richness and diversity of the Aid for Trade work progamme in each and all of its national, regional and global dimensions.

In this context, the LDCs are much better placed, and indeed much ahead of others, to take advantage of the Aid for Trade initiative because of the work being undertaken in the Enhanced Integrated Framework. Through its diagnostic trade integration studies and action matrices, the EIF provides the LDCs with a mechanism to advance their Aid for Trade strategies.

The Integrated Framework, first launched over a decade ago, has been revamped to improve its delivery mechanism, which is now firmly based on the principles of country ownership and partnership. And while it has taken too long to reach where it is today, we can safely say that all necessary institutional elements — policies, people and funds — are now in place for the LDCs to benefit from a fully operational and enhanced IF, and through that, Aid for Trade.

The IF Executive Secretariat became operational early last month when the new Executive Director, Dorothy Tembo, who is here with us today, came on board.

Let me conclude by saying that over the coming weeks we have a unique opportunity to progress on both fronts. WTO members have it within their grasp to reach modalities in agriculture and industry, providing a stepping stone towards a conclusion of the Doha Development Round. And in just over a week the international community will gather in Doha, Qatar, on financing for development. The international community needs to keep the interests of its poorest and weakest members and deliver on the promises of more and better development aid. And I hope that the signal from Qatar will be in line with the determination showed by G20 leaders to keep to their commitment in development assistance, notwithstanding the difficult economic and budgetary circumstances of today. And I think we must recognize the strong position taken by UN Secretary General Ban Ki Moon on this issue.

The international community must deliver on both aid and trade. In the present economic turmoil, what was necessary yesterday is now indispensable.

I thank you for your attention.