FFD more relevant to developing countries' trade than the Doha Trade Round, says COC (November 2008)

Rethinking Bretton Woods | Mon, Dec 8, 2008

By Aldo Caliari

Speaking at the Roundtable 3, on Trade, of the Doha Review Conference on Financing for Development, Center of Concern staff, Aldo Caliari, spoke about the imperative need for the Financing for Development Process to address real problems that developing countries face in engaging in the trade system, problems that are not even on the agenda of the Doha Trade Round.

Doha Review Conference on Financing for Development (Roundtable 3, Trade) 

Statement by Aldo Caliari, Center of Concern 

Madame Co-Chair,  As you may know, CSOs held their forum two days before the conference. In regard to the topic at hand, an overarching concern that came out of that forum and that I would like to convey was about the level of attention being given to the WTO Doha Round, which we feel is a bit of a red herring.  

We believe that, as far as trade issues are concerned, this conference should review what has been done to address some real problems that developing countries face in engaging in the trade system. These problems are not even on the agenda of the Doha Trade Round (nor can they be, because the Doha Round is in the WTO, and it is about access to markets). 

Due to the financial crisis, exports of developing countries are going down—they will continue to go down- and this is not because they don’t have market access. The level of market access has not changed. On the other hand, in the last seven years, and in spite of absolutely no progress in the Doha Trade Round, and no increase in market access, world trade has grown a startling 70 percent.  So the FFD process should be addressing issues regarding how trade can become a tool for generating development finance. And, more importantly, a tool for financial stability, rather than financial vulnerability.

 I speak of financial vulnerability because with the financial crisis we can see clearly that the impacts on developing countries will be mostly felt through trade channels. This is the result of years in which their economies were oriented to exports without enough emphasis on the diversification of products, sectors and markets, and of value added to them.  The impact of decreasing prices of commodities—on which large parts of the developing world are still dependent-- and lower demand for manufactures, are primarily responsible for the ripple effects that these countries will suffer on investment, terms of trade and infrastructure financing, debt and macroeconomic balances. 

There are at least five key issues where the FFD process could deliver a lot more for developing countries than the Doha Trade Round. In fact, Financing for Development is the only negotiating process where these issues can be addressed, or else these issues would have no forum for negotiation at all.    

First issue, how to derive, and avoid the erosion of, public revenue from trade. Of course, this has to do with implementing best practices at national level but in many cases national policies in this area cannot be effective unless accompanied by more effective international cooperation.  

Second issue is that the pattern of foreign investment matters. We need to find the regulatory tools that best enable private sector investment in exports to yield broad-based benefits. Likewise, with regards to trade-related infrastructure, we need to achieve an equitable distribution of the risks and returns in public private partnerships to provide infrastructure. 

Third, Aid for Trade is critical to build productive capacities without which there is no trade –but we are not sure that Aid for Trade is really going towards this purpose, or to what extent.  

Fourth, how to break the export-debt service cycle. If revenues from exports keep going into paying excessive debt burdens, they can never be put into initiating a virtuous export-investment process to jumpstart development. The Debt Sustainability Framework does not take this, or dynamics in terms of trade, into account. 

Finally, the systemic issues affecting trade. One of them is access to trade finance in affordable terms. Here, international financial regulation, especially Basel II provisioning rules, should be reformed with these needs in mind. Such reform should also enable access to credit for production in affordable terms. The other that can be identified is how to deal with exchange rate volatility. Large fluctuations among major reserve currencies have a negative impact on the trade performance of developing countries. It plays this role by creating uncertainty in the value of market access and export revenue projections, the availability of domestic and foreign investment for exports, and the access to capital in international financial markets.  

We really hope the Financing for Development discussion around trade would focus more on these urgent issues, rather than keep weighing the likelihood or not of the Doha Trade Round moving forward.  

Thank you, Madame Chair.