The Value Of Development Experience For Building Trade Capacity

James Michel* 

The old division of the world into two power blocs, East and West, has subsided.  Now the big challenge and threat is the gap in wealth and health that separates rich and poor. [….] Here is the greatest single problem and danger facing the world of the Third Millennium.[1]

This growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability.  We must confront it.  We must include every African, every Asian, every Latin American every Muslim, in an expanding circle of development. […] Trade is the engine of development.  And by promoting it, we will help to meet the needs of the world’s poor.[2] 

The Stakes Involved 

The tragic and ruthless acts of terror, death and destruction perpetrated on September 11, 2001, by alienated and determined extremists have definitively ended the debate on whether we are witnessing the end of history.  In 2002 we know that the consolidation on a global scale of peace, security, democracy and economic well-being is far from inevitable.[3]  We also recognize that the continued exclusion of large numbers of people and, indeed, entire countries from the experience of human progress poses a challenge to the security of people and countries throughout the world. 

Proponents of globalization argue for an expansion of participation in a global economy that is open to the free flow of capital, goods and services and driven by knowledge, technology, market forces and international standards.[4]  Other voices question the assumption of the globalists that industrialized and developing countries can have shared values and interests that will work for the benefit of people everywhere.  The anti-globalists find current trends unjust.  They point to the wide disparity in wealth and economic growth between rich and poor as evidence of systemic deficiencies and argue that globalization causes inequality, not convergence.[5] 

The persistent disparity in wealth and incomes between rich and poor countries cannot be denied.[6]  However, recent analysis has pointed out that the last 50 years have witnessed unprecedented advances in longevity, health, education, housing, nutrition and reductions in extreme poverty.[7]  In addition, there is persuasive evidence that developing countries that are able to open their economies to trade and investment achieve faster growth and poverty reduction and experience reduced inequality.[8]  These findings support a policy of facilitating the integration of poor countries into the global economy, an inclusive approach to globalization, as an important strategy for advancing human well being within a framework of stable, safe and just societies. 

Within the international community, support remains strong for the inclusion of developing countries in the global economy.  The Declaration of the November 2001 World Trade Organization Ministerial Meeting at Doha contained numerous references to what the declaration called the “development dimensions of the multilateral trading system,” including extensive provisions on technical cooperation and capacity building.[9]  The principal multilateral agencies in this field (World Bank, International Monetary Fund, United Nations Development Program, World Trade Organization, United Nations Conference on Trade and Development, International Trade Centre) have renewed their combined efforts in the Integrated Framework for Technical Assistance to Least-Developed Countries.[10]  The bilateral donors have also come together in the Development Assistance Committee of the Organization for Economic Cooperation and Development to adopt a statement of development ministers and aid agency heads and a related set of guidelines on strengthening trade capacity for development.[11]  Developing countries joined in hopeful statements about global interdependence at the tenth session of the United Nations Conference on Trade and Development in February 2000 at Bangkok[12] and the Third United Nations Conference on the Least Developed Countries in May 2001 at Brussels.[13] 

Most recently, 51 heads of State and Government joined with hundreds of ministers and representatives of civil society at the International Conference on Financing for Development in Monterrey, Mexico, in March 2002.  There, they adopted the Monterrey Consensus, a commitment to a fully inclusive and equitable global economic system.  In that context, they committed themselves to implementation of “the decisions of the World Trade Organization to place the needs and interests of the developing countries at the heart of its work programme.”  They pledged to implement the commitments made in Doha and underscored “the importance of effective, secure and predictable financing of trade-related technical assistance and capacity building.”[14]

The DAC Guidelines are expressly based on five premises that fairly represent the thinking behind all of the aforementioned international initiatives: 

1. Trade and its liberalization can contribute to development.
2. Developing countries want to integrate into the global economy.
3. The new global economic context offers promising opportunities, but poses daunting challenges.
4. Trade policy makers have a major stake in strengthening the trade-related capacities of developing countries.
5. Donor support can strengthen the multilateral trading system by addressing the trade challenges facing developing countries.[15]

Together, these five premises reflect notions of interdependence, inclusive globalization and shared values and interests.  These are notions that are all under challenge.[16]  The test for the worldview they represent will be whether they can be given effect so as to contribute to broadly based economic growth.  Whatever the secondary benefits, trade and investment are supposed to achieve economic results.  Yet, economic growth has been the most elusive goal of development efforts in most countries.[17] 

It will be a formidable challenge to implement the many programs intended to strengthen the trade-related capacities of developing countries in a manner that contributes to increased convergence in the values and interests of people and governments and advances human dignity, freedom and economic well-being.  How well we all respond to that challenge will have historic implications.  As historian David Landes said in the passage quoted at the beginning of this paper, the gap between rich and poor is “the greatest single problem and danger facing the world in the Third Millennium.”[18] 

The Nature Of The Development Process 

Trade, of course, is only one among many aspects of development, and trade-related capacity building cannot be isolated from other development efforts.[19]  International cooperation in support of trade capacity building must be viewed within the context of the broad consensus that has evolved over the past decade about the nature of development and development cooperation.  That consensus is centered around what has been described as a “differentiated partnership approach,” a concept that emphasizes coordinated international support for local capacity, responsibility and ownership of integrated strategies to achieve agreed objectives.  Its partnership aspect reflects its focus of donor support on agreed objectives and agreed priorities.  Its differentiation comes from the adaptation of efforts in each case to the realities of local circumstances.  This approach is found in policy documents of the United Nations, the OECD, the World Bank and many developing countries.[20] 

The basic principles of the differentiated partnership approach can be summarized as follows: 

-         Development is a process by which societies become stable, prosperous, safe and just, with shared basic values and interests grounded in human freedom and opportunity.  Such societies are foundations of human security, well-being and fulfillment, and form the base of a peaceful and productive global community.

-         Development comes from within a society.  In must be based upon local responsibility for and commitment to integrated policies and strategies that are results-oriented over the long term.  These policies have economic, social, political, environmental and security dimensions, all of which must be heeded.

-         International support for such locally led efforts can be effective in accelerating and increasing positive development outcomes.  Such support should be based on shared goals, an agreed division of labor, adequate resources, coherent policies and effective coordination. 

-         Development cooperation is more than aid.  It needs to be integrated into a broader framework of policies to facilitate greater participation by poor countries in the global community and greater participation by poor people in their societies.

Experience has shown that partnerships should be based on realistic assessments of available capacities and commitments of the parties.  Cooperation might involve large or small objectives, a broad or a narrow range of activities.  Partnerships might involve working more with government actors or more with civil society.  Objectives need to be set and activities designed to be compatible with the capacities and commitments of the local actors and the environment in which the work is to take place, as well as the capacities and commitments of the external partners. 

In an ideal situation, the host government would be at the center, consulting with civil society and international donors and guiding the implementation of a coherent development program.  This ideal is intended to offer an alternative to unsatisfactory earlier approaches to development cooperation.  Purely need-based assistance had tended to foster dependency, while externally imposed conditions tended to foster resentment and rationalization.[21]  Of course, the ideal is only rarely seen.  Developing countries often have weaknesses that limit their ability to be effective partners.  Likewise, few donors allocate their resources exclusively on the basis of objective calculations about the need, capacity and will of their partners.  The day-to-day challenge is to make the best policy and program decisions in less than ideal conditions, balancing the needs for local ownership, realistic objectives and efficient implementation. 

The Importance Of Trade-Related Capacities For Development 

With respect to the link between development and trade, a new World Bank study estimates that those countries that deepened their integration with the global economy during the 1990s have seen their incomes rise at more than three times the pace of those that did not integrate.[22]  Developing countries as a whole increased their market share in a growing volume of non-energy merchandise trade by about seven per cent, and have experienced even faster growth in trade in services.[23]  However, statistics about overall growth rates include both outstanding performance by some countries and stagnation or lost ground by others.  The poorest countries were among the weakest performers. 

The proposal by President Bush in March 2002 for a new compact for global development, supported by a $10 billion Millennium Challenge Account,[24] and the heightened attention to the importance of development assistance achieved at the Monterrey Conference on Financing for Development,[25] offer some hope for a reversal in the decade-long trend of stagnation and decline in aid volume.  However, the prospects for substantial and sustained growth of official development assistance remain uncertain. 

Private flows, while highly concentrated, and domestic resource mobilization have taken on increasing importance as sources of development finance.[26] It seems evident that poor countries will need to finance more and more of their development by increasing productivity, attracting investment and expanding trade.  At the same time, the poorest countries are the most dependent on official flows and the least able to attract private capital.[27] 

Some of the obstacles developing countries will face derive from constraints on their access to markets.  These external obstacles, such as production subsidies, tariff spikes and tariff escalation by industrialized countries, need to be addressed through trade negotiations.  Poor countries need to be able to negotiate for better treatment.[28] 

A number of industrialized countries (and some developing countries) have undertaken unilateral liberalizations of market access, especially for least developed countries.[29]  These measures can provide a valuable stimulus and produce early results.  For example, in the first six months of 2001 United States trade with Africa rose by 17 per cent over the comparable period in 2000.[30]  This appears to be at least partially attributable to the African Growth and Opportunity Act.  Similarly, exports by Caribbean Basin countries to the United States in 2000 were 2.5 times greater than in 1984 when the Caribbean Basin Initiative entered into force.[31]  However, annual exports by all Sub-Saharan African countries to the US are only about $20 billion and the exports from CBI countries are of comparable amounts.[32]  By contrast, the OECD estimates that gains for developing countries from full liberalization of merchandise trade and trade in services, with dynamic effects, would exceed $500 billion.[33]  Relying on unilateral concessions by rich countries is not an adequate alternative to the negotiation of better terms of trade for poor countries in a new development round. 

Other obstacles derive from limited internal capacities of developing countries to make good use of opportunities to benefit from trade: 

-         Governments often lack the ability to participate in the international system and negotiate for better treatment in international markets.

-         Governments also often lack the ability to formulate and carry out appropriate national policies to provide a favorable economic environment for investment, production and trade.

-         Firms often lack the ability to produce and sell goods and services that will be competitive in international markets and lack access to information and services that would help them to be more competitive. 

These are limitations of political will as well as limitations of information, technical ability and business acumen.  Addressing these obstacles is a highly complex process to achieve increased public sector knowledge and analytical abilities, heightened expectations of government by citizens, enhanced competitiveness by local producers and service providers, and capable political leadership.  As discussed below, the three kinds of capacity limitations outlined here should be the focus of assistance to strengthen trade-related skills. 

There are indications that donors are receptive to the need to support trade-related capacity development.  These indications include the aforementioned effort to revitalize the multilateral Integrated Framework,[34] the declaration and guidelines adopted by bilateral donors,[35] and the numerous commitments contained in the Doha Ministerial Declaration[36] and the Monterrey Consensus.[37]  The United States alone has increased its assistance for building trade capacity from $327 million in fiscal year 1999 to $457 million in 2000 to $556 million in 2001.[38]  Converting interest and resources into results will require effective development strategies. 

If poor countries are to benefit from the international trading system they will need both the capacity to produce and the opportunity to compete.  Without opportunity, there will be no incentive to build capacity; without capacity, opportunity will remain an unfulfilled promise.  Progress in both must proceed in tandem.  This demands much of developing and industrialized countries, including a measure of coherence in their trade policies and their development policies.