Promoting Long Term Strategies for Market Access for LDCs

Presentation by

Professor Mustafizur Rahman Distinguished Fellow

Centre for Policy Dialogue (CPD) Dhaka, Bangladesh

Regional Workshop on

Using Evidence Based Trade Policy for Achieving the Sustainable

Development Goals in LDCs and LLDCs

3-5 September 2018

Thimphu, Bhutan

Promoting Long Term Strategies for Market Access for LDCs

Presentation Structure

Section I. Introduction: A Renewed Urgency

Section II. LDC Graduation: Change in Terms of Market Access

Section III. Strategies for Strengthened Market Access of the LDCs

Section IV. Domestic Supply Side Capacity Building: Key to

Strengthened Market Access

PMR (2018): Promoting Long Term Strategies for Market Access for LDCs 2

Promoting Long Term Strategies for Market Access for LDCs

• All LDCs, without exception, have high degree of openness to global economy through export and import of goods, services, investment and capital flows

• And this has been on the rise in the recent past

• Consequently, issues of strengthened market access is entwined with, and linked to, economic development and structural transformation of the LDCs

• In the current context, the need to promote long term strategies for meaningful market access of the LDCs has assumed heightened importance for a number of reasons :

The changing global trading eco-system (heightened competition; slow post-crisis recovery; commodity price volatility)

Inadequate capacity to realise the potential benefits originating from WTO market access provisions favouring the LDCs (e.g. DF-QF Market Access, TRIPs and Pharmaceutical decision; S&D provisions)

The need to take advantage of opportunities of strengthened regional integration

New issues being debated in the WTO (e-commerce, fisheries subsidies, MSMEs)

The new needs of market access in view of the ‘new economy’ as against ‘traditional economy’

Ongoing trade war and possible consequences for market access


Section I. Introduction: A Renewed Urgency

LDC Graduation

• The need for strengthened market access has gained renewed urgency in view also of the

significant number of LDCs graduating out of the group

LDC graduation will have important implications for market access of these countries

While these LDCs have crossed at least two of the three graduation thresholds (per

capita GNI: USD 1230; HAI: above 66; EVI: below 32), they will need to further

strengthen their market access capacity since they continue to suffer from many types

of vulnerabilities and structural weaknesses. Indeed, LDC graduation conceals a

number of structural weaknesses which would make sustainable graduation more

challenging

Consequently, the need for well crafted long term market access strategy, as part of the

graduation strategy of graduating LDCs, is of particular relevance for this specific sub-

category of the LDCs. Strengthened market access is needed towards:

: Smooth LDC graduation

: Graduation with momentum

: Sustainable LDC graduation


• The graduating LDCs will need to maintain current growth momentum to distance

further from the thresholds

• Experience of some graduated LDCs: Persistence of vulnerabilities, deferment of

graduation

• The interregnum years between graduation eligibility and final graduation (following

two triennial reviews) provide a breathing space to prepare the LDCs for sustainable

graduation

Designing a well-crafted market access strategy for graduating LDCs is, thus, critically

important for sustainable LDC graduation



• Fifteen LDCs out of 47 are slated for graduation. 10 out of 13 A-P LDCs are

among those

Implications of LDC Graduation for Market Access

• LDCs enjoy preferential market access enjoyed, at varying degrees and extent, in more

than 40 countries

• LDC graduation will lead to significant preference erosion

• UNCTAD estimates indicate export decline of between 5.5% to 7.5% for graduating

LDCs

• Estimates of a CPD study show (using a gravity type regression model) that, at the

prevailing MFN rates, on average, Bangladesh’s exports will face an additional 6.7%

tariff once it graduates from the LDC status. Corresponding figures for EU, non-EU and

Canada are: 8.7%, 3.9% and 7.3% respectively

Estimated export loss to the tune of USD 2.7 billion - equivalent to about 8.7% of

Bangladesh’s global exports in FY2015. Results consistent with UNCTAD findings


Section II. LDC Graduation: Change in Terms of Market Access

• Preference erosion will likely have adverse implications for graduated LDCs in terms of

export competitiveness, and export earnings and consequently, for GDP, balance of

payments, employment creation and poverty alleviation

• Graduated LDCs will also no longer be eligible for preferential market access enjoyed as

an LDC in various RTAs (e.g. LDCs receive DF-QF facility in various RTAs of which they are

members)

• Unless LDCs manage to renegotiate, through bilateral agreements or as part of regional

trade arrangements (of BFTAs and CEPA type), they will face MFN tariff rates following

LDC graduation or reduced preferential margins under standard GSP scheme in EU

market

• Once finally graduated, LDCs will no more be eligible for targetted support measures in

the WTO: DF-QF market access negotiated in the WTO; trade-related EIF funds; Special

and Differential Treatment (S&DT) provisions for the LDCs; potential support from the

proposed ‘Technological Bank’; Decadal Programme of Actions for the LDCs

• Graduated LDCs will also not be eligible for science, technology and innovation (STI)

related concessional finance for the LDCs


• Intellectual property rights (IPR) regime will be more stringently applied – this will

be particularly relevant for such sectors as pharmaceutical for which LDCs are

receiving special treatment under the DDR (2001) decision on Trade-Related

Aspects of Intellectual Property Rights (TRIPS) and Public Health

• Graduated LDCs will not benefit from any progress in the services waiver

negotiations which is geared to provide preferential access for service exports from

the LDCs

• Caps on LDC contribution to regular budgets of UN, ILO, UNIDO, IPU, etc. as well as

access to special travel funds, free tickets to UN and WTO meetings will no longer be

applicable for gradated LDCs

• Graduation may adversely affect LDC possibility of receiving preferential climate

financing: infrastructure development fund, climate change adaptation funds and

technology related green climate fund (GCF)


Costs of Borrowings by LDCs to Rise

• Many LDCs are also making a second graduation: graduation from LIC to LMIC

• Transition from grants to loan, concessional to non-concessional borrowing relating to

ODA

• Transition from IDA-only loan (USD 1,165 GNI per capita) to blended finance; and

IBRD type loan only status (more than USD 1,905 GNI per capita)

• Borrowing costs to rise and conditionalities to toughen : higher lending rates; shorter

maturity terms; more stringent conditionalities


Structural Transformation of the Economy: Transformation from Factor-driven to Technology and Productivity Driven Economy

• Need to translate comparative advantages of LDCs into competitive advantages

• WEF Report: Four categories of countries by technological endowment hierarchy– Leading, High Potential, Legacy, Nascent

The vast majority of LDCs belong to the lowest category: ‘Nascent’ Group

• Strategies to be pursued

Skills endowment

Upgradation of technology and productivity enhancement – challenge: “Jobless Growth”

Raising productivity to gain competitive strength


Section III. Strategies for Strengthened Market Access of the LDCs

Structural Transformation of the Economy: Graduation from Factor-driven to Technology and Productivity Driven Economy

• To improve productivity scenario, improvements will need to be made in

strengthening institutions, raising efficacy of incentives, raising quality of fiscal and

monetary management, better targeting and allocative efficiency, proper utilisation

of resources, and raising quality of implementation of market access strengthening

activities

• More emphasis will need to be put on drivers of structural transformation of the

economy. Emphasis will have to be put on the ‘new economy’ as against the

“traditional economy”

Attracting FDI: Regulatory regime; Incentives; Institutional support; Ease of

doing business; E-commerce infrastructure

Setting up SEZs, Industrial Parks

Ensuring positive spill-over to DTAs


Strengthening Market Access

• LDCs, both graduating and non-graduating, needs to make renewed efforts towards:

Product and market diversification (e.g. by putting emphasis on quality and value-added, market segments)

Take advantage of the increasing South-South trade opportunities, particularly market access to the regional markets through targeted product diversification initiatives and by attracting FDI

Selectively venture into bilateral-regional trade/investment agreements keeping in purview development of production networks and regional value chains

Explore how gradating LDCs can take advantage of non-LDC specific preferential arrangements such as those under various GSP schemes for developing countries

Implement provisions of Trade Facilitation Agreement to strengthen competitiveness

Develop the services sector (e-commerce, digital trade) as a strategy to raise competitiveness. Services are embedded in many transactions involving goods trade

• For graduating LDCs there is a need to explore opportunities of accessing the GSP+ window of the EU


GSP+ Eligibility

• Precondition: Eligibility for LICs or LMICs

• 1st Criteria: To become eligible for EU’s GSP plus scheme, a country’s 7 largest sectors

(GSP-covered product sections) must be worth at least 75% in value of their total GSP-

covered exports to the EU. Many exports to the EU from LDCs are highly concentrated

• 2nd Criteria: A country’s GSP-eligible exports to the EU must represent less than 6.5% of

the value of the EU’s total imports from all GSP beneficiary countries

Need to closely monitor post-Brexit reforms and changes

• 3rd criteria: Ratify and implement 27 core international conventions


Strategies to be Pursued in the WTO

• Dual role in WTO: As an LDC, and as a prospective graduated LDC – engagement in

built-in agenda, new issues; S&DT for developing members

• Pursue the case of designing support in the WTO for graduating LDCs

• Undertake bilateral negotiations with the objective of continuing preferential access

for a certain period following LDC graduation (e.g. in EU, eligibility of preferential

access for three additional years under the EBA)

• Pursue services negotiations actively. Many LDCs have comparative advantages in

services. For graduating LDCs the window is, however, narrow

• Needed: A highly proactive trade policy, including exploring the option of

negotiating membership in various mega-trading blocs and RTAs of Comprehensive

Economic Partnership Agreement (CEPA) type. This will call for adequate

preparations and significant enhancement of negotiating power

• Following Brexit, engagement with UK. If there is a Commonwealth-wide GSP

scheme, Commonwealth member LDCs should remain engaged in the negotiations


Taking Advantage of Regional and sub-Regional Cooperation

Regionalism versus Regionalisation

• Regionalisation – A natural process of cooperation among neighbouring countries to take advantage of multilateralism

• Regionalism – A conscious process to foster closer cooperation among neighbouring countries with a view:

to foster closer economic cooperation

as a means towards strengthened global integration

• What we are seeing is a move towards ‘conscious regionalism’ as a strategy for strengthened market access

• Closed versus open regionalism: The trend is more pronounced favouring open regionalism


• More attention to deepen cooperation at regional (Southern and South Asian) and sub-

regional levels through multi-modal, seamless connectivity. BIMSTEC-wide

cooperation as an opportunity BBIN-MVA; RBI

To develop regional and sub-regional value chains and production networks

• Needed: Investment in trade facilitation, establishment of single window, electronic

data interface facilities, harmonisation of standards and certification and design of

standard operating protocols


Getting Ready for the New Aid Regime

• To strengthen market access capacities, LDCs will need significant resources. On the

other hand, cost of borrowings are going up

• Need to access new opportunities of finance: AIIB; New Development Bank; Blended

Finance; Raising capital through issuing of sovereign bonds in the international market

• Maximum utilisation of aid in the pipeline should be given priority, as the terms will

change with graduation

• LDCs will need to get ready to gradually go for capital account convertibility to attract

FDI and build the RVCs


Learning from Graduated LDCs, Lessons for Graduating LDCs

• All the five already graduated LDCs are small and highly vulnerable economies. Whilst they did pass the graduation thresholds, their economies had continued to remain susceptible to many of the past vulnerabilities

• LDCs should take five important lessons from their graduation process in order to strengthen their market access capacities:

Take advantage of UNCTAD’s vulnerability assessment and UN-DESA’s ex-ante impact assessment exercises to build a case for additional support

Take adequate preparation to reduce vulnerabilities, towards diversification of the economy and structural transformation

Explore windows of opportunity through smart negotiations, for preferential treatment through proactive engagement with international organisations (WTO; EU, at bilateral and regional levels)

Demand implementation of 2005 UN Resolution in support of graduated LDCs. EU has offered extension of the EBA for three additional years in line with UN Resolution of 2005. Also extension of support under WTO-EIF

Negotiate access to soft loans from multilateral agencies (World Bank, AIIB, NDB, ADB, regional financial entities)


21 PMR (2018): Promoting Long Term Strategies for Market Access for LDCs

Section IV. Domestic Supply Side Capacity Building: Key to Strengthened Market Access

Do the Homework

• Strengthening backward and forward linkage industries

• Capacity building for mutual recognition of technical regulations, standards and product certification to address NTBs

• Develop product specific R&D

• Identify export niche Support for identification of areas to stimulate FDI flow to the LDCs including opportunities for guaranteed buy-back arrangements and government procurement

• Support for product development and market promotion of export-oriented sectors Development of trade-related institutions

• Human resource development in trade-related areas

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LDC Graduation and SDG Attainment: A Mutually Reinforcing Journey

• The interlinkage map clearly shows the close correspondence between attaining the

SDGs and moving towards LDC graduation with momentum and sustainability

• Attaining the SDG targets under the various Goals, and the LDC graduation thresholds

under the three indicators are mutually reinforcing.

• LDC graduation will help graduating LDCs to attain the SDGs, and attaining the SDGs

will help graduating LDCs to ensure strengthened market access of the LDCs and

sustainable LDC graduation

• Environment-friendly production processes have emerged as a precondition for

market access of the future

PMR (2018): Promoting Long Term Strategies for Market Access for LDCs

23 PMR (2018): Promoting Long Term Strategies for Market Access for LDCs

Source: Khatun et al. (CPD, 2017, Forthcoming)

Drawing Synergies between SDG Implementation and LDC Graduation

Network of LDC graduation criteria and SDG targets

Thank You

Promoting Long Term Strategies for Market Access for LDCs

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