TWN Info Service on UN Sustainable Development (Jun18/01)
4 June 2018
Third World Network

United Nations: Multilateralism and international trade under pressure
Published in SUNS #8692 dated 1 June 2018

Geneva, 31 May (Kanaga Raja) - Multilateralism and international trade are facing intensifying pressure, in particular with regard to their development impact, the UN Conference on Trade and Development (UNCTAD) has said.

This is compounded by the rise of nationalist sentiment, increased use of trade-restrictive policies, increasing difficulties in adopting hard rules in multilateral trade negotiations and a growing tendency to craft trade deals in bilateral, plurilateral and regional settings.

This assessment was highlighted by UNCTAD in a Secretariat Note prepared for the sixty-fifth session of the Trade and Development Board, which begins next week.

The Secretariat Note has made some policy recommendations and has posed questions for the UNCTAD membership to consider.

Among the policy recommendations, UNCTAD has underscored the need for the international community to work together, in all available forums, to uphold multilateralism.

Such an approach should remain at the core of the global partnership, UNCTAD said.

UNCTAD said the challenge for the international community is to ensure that the headwinds that multilateralism and international trade are currently facing do not hold back the contribution of international trade to the achievement of the 2030 Agenda for Sustainable Development and the Sustainable Development Goals.

According to the UNCTAD paper, international trade accounts for important shares of the outputs of national economies, yet its rise in importance has slowed. The most commonly used index of globalization trends, namely the ratio of t he value of international trade over global output, stalled at about 30 per cent in 2011-2014, a level first reached in 2007, then fell by about 5 percentage points in 2015 and 2016.

The most recent statistics and forecasts point to a positive trend in relation to both international trade and global output. Overall, it is likely that in 2017 and 2018, trade will outpace output growth, albeit marginally. Global output growth is expected to be around 3.6 percentage points and trade growth, around 4 percentage points.

A recovery in trade growth is a positive factor for developing countries in particular, provided it reflects growth in developing country exports.

UNCTAD however pointed out that the recovery in trade remains fragile, as it is too early to gauge whether this positive trend will continue in the coming years.

"There is significant uncertainty and vulnerability affecting the global economy, and there are growing trade frictions between countries that may negatively affect international trade in the near future," it said.

Public support for globalization and for multilateral cooperation has waned. Concerns with regard to the benefits of globalization are also reflected in a surge in protectionist rhetoric.

Debates on the persistence of trade imbalances and on the fairness of export promotion practices between the major economies are of concern.

In addition, these developments have been accompanied by an increase in trade defence measures, such as anti- dumping and safeguard measures, and related investigations and disputes.

"All of these developments have resulted in policymaking processes that are more cautious with regard to multilateral cooperation initiatives," said the paper.

"Recently enacted protectionist measures risk provoking trade disputes, retaliations or trade wars. If many countries, in particular major trading economies, engage in trade-related disputes, such friction can impede the recovery of international trade and undermine multilateral cooperation," it cautioned.

The weakening globalization trend observed over the past decade has been accompanied by growing recognition that the economic gains and opportunities brought about by globalization have not been inclusive and have not always translated into sustainable economic, social and environmental well-being.

Trade has contributed to lifting millions of people out of poverty, yet there remain a large number of people for whom the globalization process and trade openness has been harmful.

In some countries, international trade and the rules governing such trade, developed through years of multilateral cooperation and administered through international arrangements, are increasingly perceived as detrimental to ordinary workers and as eliminating jobs, in particular in manufacturing sectors.

Such concerns emphasize the issue of the equitable distribution of gains from trade and, in this regard, the need for policymaking at all levels that sufficiently protects the interests of the less privileged, said UNCTAD.

In addition, rapid technological progress, such as the automation of production processes, has displaced some workers, yet has also created opportunities f or new jobs based on technological advancements, and strategies to effectively harness technological change are therefore crucial.

Geopolitical challenges, technological innovations and socially or environmentally driven changes have created complex and urgent problems at both national and global levels. These challenges, and the need to address them collectively, added impetus to the adoption of the 2030 Agenda.

"However, despite the momentum launched by the adoption of the Sustainable Development Goals, there are mounting concerns over the ability, and practicability, of multilateralism to address global problems and promote sustainable development through a strengthened global partnership."

According to UNCTAD, the weakening globalization trend is also mirrored in the status of some multilateral cooperation processes, in particular the stalemate in multilateral trade rule-making under the World Trade Organization and in the appointment of members (to fill vacancies) of its Appellate Body.

The continued hiatus in reaching comprehensive results, including at recent ministerial conferences, illustrates the difficulties in advancing a multilateral agenda at this time.

Some difficulties originate from a lack of consensus in negotiations on the multilateral policies and rules that would best support the development process in developing countries.

Other difficulties originate from the emergence of new issues owing to the rapid changes that the global economy is experiencing, such as in electronic commerce (e-commerce) and investment and trade facilitation, which some countries wish to address.

The need for and scope of increased participation in international trade remains strong in many developing countries, in particular the least developed countries and small and vulnerable economies.

It is therefore important to establish robust multilateral hard trade rules, to provide predictability, transparency and stability in market openings.

However, efforts to improve multilateral hard trade rule-making continue to stall, yet the policymaking process has continued to progress at bilateral and regional levels.

The number of preferential trade agreements, investment treaties and technical assistance programmes targeting behind-the-border and at-the-border policy reforms has continued to increase.

There are two issues of concern to be considered in this regard, said UNCTA D.

First, a more polarized international rule-making approach may not be in the interest of parties with more limited negotiating power and economic weight.

Second, such polarization is likely to create a set of mutually inconsistent rules, which it may thereafter be difficult to establish at the multilateral level, as the rules may have been cemented by the interests of societal groups and economic lobbies.

There is therefore a high level of uncertainty as to how multilateral cooperation and the multilateral trading system will evolve in the coming years.

For international cooperation to resume and to succeed, in particular with regard to the 2030 Agenda and the Sustainable Development Goals, Governments need to advance an economic agenda that is not only outward looking but also fair and equitable and that brings benefits to a much larger share of constituents.

"In the absence of a coherent multilateral agenda that responds to the head winds faced by globalization, the world may continue to drift toward nationalism and multi-polarity."

UNCTAD noted that recognizing the contribution of trade, SDG Goal 17 sets specific trade-related targets.

Moreover, the fact that these targets are an integral part of achieving all of the Goals serves as a reminder that trade is not an end in itself. Trade and trade policy should serve as a catalyst for socioeconomic and environmentally sustainable development, advancing the 2030 Agenda commitment to build people-centred economies.

UNCTAD emphasised that trade policy and rules should be development-friendly, by being sensitive to and accompanied by complementary national and regional policies, to reduce poverty, create jobs and/or provide social safety nets for affected populations, as well as to promote sustainable development.

Improving market access at the border in developing countries (SDG targets 17.11 and 17.12) and behind the border in the sectors of greatest importance for poor populations remains a challenging task, it said.

For example, agricultural markets in developed countries remain restrictive , both because of border protection through tariffs and domestic support through subsidies. Average agricultural tariffs have been above 6 per cent since 2005 and have not shown much reduction in the past several years.

Such restrictions remain important, yet non-tariff measures and private standards often represent an even higher barrier to exports. The number of non-tariff measures rose from over 1,500 in the mid-2000s to over 2,500 in 2015.

Such measures tend to raise the unit values of traded products by 15-30 per cent in food and agricultural sectors and by 5-20 per cent in manufacturing sectors.

Non-tariff measures and private standards often represent an important hurdle for market access, yet they are also supportive in the achievement of sustainable development. Many non-tariff measures arise from domestic legislation designed to protect the health and safety of the population or the environment and private standards are used to meet increasing consumer demands for environmental an d social sustainability.

Significantly, although it serves similar objectives, domestic legislation generally differs between countries, resulting in unnecessary obstacles to trade.

The coordination and/or harmonization of such policies, for instance, through the adoption of international standards and increased regulatory convergence, may be helpful in this regard, UNCTAD suggested.

"Ways forward on this matter could build on the coordination by UNCTAD of work on non-tariff measures among several United Nations and international and regional organizations, as well as on its comprehensive database on non-tariff measures."

The paper also said that fast, reliable and transparent trade procedures are important for developing countries to be able to reach markets abroad and to participate in global value chains.

It noted that as developing countries face increasingly greater challenges in accessing large and complex markets, development assistance and global partnerships for development are more important than ever.

Improving development assistance, such as by increasing resources through aid for trade, providing trade-related information and increasing investment, is necessary to improve developing country access to markets.

SOME INTER-RELATED POLICY DIMENSIONS

According to UNCTAD, at the macroeconomic level, international trade, that is, exports of goods and services, accounts for more than half of the gross domestic product of many low-income countries.

Moreover, under certain conditions, international trade provides support for a large number of jobs in many developing countries (Goal 8), thereby contributing to the achievement of other Goals with regard to access to food, health care, education, energy and water and sanitation.

Beyond income generation, trade also influences the achievement of most of the Goals through other channels, both directly and indirectly.

"Countries need to ensure that the aggregate gains from trade are maximized , shared fairly and equitably, in particular among the most vulnerable groups , and that those who are affected by trade-related disruptions and adjustments are quickly brought back to productive employment," said UNCTAD.

Trade policies alone are not enough to achieve this and complementary policies such as fiscal and financial policies, as well as policies related to investment, industry, education, skills and innovation and competition and consumer protection, along with quality infrastructure and trade facilitation measures in favour of micro-enterprises and small and medium-sized enterprises, are essential for inclusive development.

Providing jobs and incomes to vulnerable populations, including the poor, w omen and youth, is an overarching theme of the Goals.

Trade and trade policies may be used to address related concerns, such as decreasing the lack of gender-related equality. For example, pro-poor trade policies can increase the relative income of poor households by altering the availability, accessibility, affordability and quality of essential goods, for example, lowering tariffs on mosquito nets in countries where malaria is prevalent, to help reduce child mortality.

According to UNCTAD, as trade increasingly takes place online, achieving target 17.11 increasingly requires enterprises in developing countries to be visible online and engage in e-commerce.

New digital solutions can help overcome challenges to exporting, such as those related to small domestic markets and remoteness from global markets and other geographical disadvantages.

Traditionally, only large and productive firms were able to bear the costs associated with export entry, such as identifying and marketing to distant customers.

Such costs can be significant with each successive export market entry. By reducing information asymmetries and costs related to communications and information, transactions, searches and matching, new solutions can help lower overall trade costs.

Digital technologies also create opportunities for new types of trade in digitally traded products, services and tasks, as well as for increased traditional trade using e-commerce and online platforms to match buyers and sellers. Such platforms can help enhance the visibility of products.

"However, although digitalization can help make trade more inclusive, gains are not automatic," the UNCTAD paper pointed out.

Companies still need to ensure that their goods and services meet the quality standards and prices expected by potential clients.

Challenges include ensuring that entrepreneurs have the required capabilities to engage in e-commerce, as well as cross-border trade, such as capabilities i n digital marketing and the ability to comply with various trade rules.

UNCTAD also noted that the services sector plays an increasingly important role in the world economy in creating employment, building linkages, coordinating production processes and facilitating international trade. In 2016, it accounted for about 67 per cent of output and 49 per cent of employment in the world economy.

Developing countries with weak domestic productive capacities in manufacturing sectors, in particular commodity-dependent and small economies, may diversify their export baskets into services products such as tourism.

Given the high transportation costs of merchandise goods due to weak connectivity and long distances to major markets, as well as advances in information and communications technology and e-commerce technology, services trade can be a good alternative approach to promoting trade and domestic employment.

UNCTAD noted that trade liberalization and reforms can bring frictions and adjustment costs in the short term.

For example, trade reforms can strongly affect the structure of employment, creating employment in some sectors while disrupting employment in other sectors. This can result in temporary unemployment as workers change jobs or industries.

Accordingly, countries should put accompanying measures in place to ease the transition for workers and firms, for example, by providing additional training for displaced workers to qualify for work in booming sectors, such that they can once more benefit from trade at a later stage.

Adequate social policies are also required to protect those negatively affected by trade-related disruptions who cannot change sectors, an effect more likely to occur among elderly populations.

The paper also pointed out that trade and investment reforms and liberalization in support of economic growth and development can be circumvented by the national and/or cross-border anti-competitive behaviour of enterprises.

"To counter and halt such behaviour, comprehensive competition provisions a re necessary at all levels," it said.

"Strengthened competition laws and policies may facilitate the national and international competitiveness of key sectors and the growth of the private sector in countries and regional groupings."

In addition, robust cross-border cooperation by competition authorities can address the harmful effects of international cartels that restrain access by small and medium-sized enterprises to regional and global value chains.

Such efforts are in line with the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices.

THE ROLE OF UNCTAD

The crisis in multilateralism and trade-related hard rule-making brings to the fore the need for more specific assessments of the governance of trade for sustainable development, said UNCTAD.

This crisis does not justify a rejection of the hard rule-making process, a s this provides stability, predictability and transparency in the rights and obligations undertaken under the international trading system.

At the same time, the rules-based multilateral trading system can potentially reduce the policy options of States in achieving the Goals, which underline s the importance of ensuring a robust development dimension.

UNCTAD said elaborating trade frameworks that foster inclusive and sustainable development may therefore be better undertaken by way of developing best practices and soft laws, such as voluntary codes of conduct and guidelines.

Such a process would enable countries to safeguard policy space while building up a non-binding system of commitments and best practices that could eventually be taken over by relevant multilateral institutions when countries wish to move from soft to hard rule-making and governance.

The current proliferation of plurilateral and issue-based negotiations has made forging trade alliances and reaching multilateral consensus increasingly complex. Countries may often be reluctant to give up policy space when exploring commitments multilaterally.

Against this background, UNCTAD offers United Nations Member States informal and formal space for open and creative dialogues to explore policy issues and interests and, ultimately, reach consensus without immediately requiring hard commitments.

The paper said in contrast to the legally binding nature of commitments under the World Trade Organization and their enforcement through the Dispute Settlement Body, the consensus-building role of UNCTAD in multilateral trade and development policymaking stimulates exchanges and the sharing of best practices and experiences, with a view to making trade work for development.

UNCTAD can thereby prepare the ground and support member States in openly and holistically discussing collective actions to problems inherent in multi-party and multi-issue trade negotiations, the paper added.

"The consensus-building role of UNCTAD may be useful in the near future as members of the World Trade Organization begin to explore the role and contribution of new issues discussed at the Eleventh Ministerial Conference, namely e-commerce, investment facilitation and micro-enterprises and small and medium-sized enterprises."

There is an opportunity for member States to reach consensus on these emerging issues in a non-binding setting.

This would follow the example demonstrated in other areas that have previously been a focus of non-binding consensus-building and soft-law approaches at UNCTAD, such as the Generalized System of Preferences, the United Nations Guidelines for Consumer Protection and the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, said the UNCTAD paper.

UNCTAD leadership in data collection and in the research and analysis of developing country trade and development issues contributes to incubating knowledge that underpins intergovernmental consensus-building and soft-law approaches, it pointed out.

UNCTAD technical assistance can also provide fruitful field-level experiences on which intergovernmental consensus-building and soft-law approaches can draw for evidence of how policies may be put into practice.

SOME POLICY RECOMMENDATIONS

The UNCTAD paper has proposed the following policy recommendations:

(a) In the current interconnected, liberalized and fast-changing environment, for trade not to be lost as an enabler of inclusive development, the international community needs to urgently work together, in all available forums, to uphold multilateralism as the cornerstone of the Global Partnership for Sustainable Development (Goal 17).

(b) The multilateral approach should remain at the core of the global partnership, to achieve sustainable development through trade.

(c) The framework for a development-friendly international trading system may be based on both hard law and soft law, with the latter taking greater prominence when the former presents difficulties with regard to policy space and options.

(d) UNCTAD, as the focal point in the United Nations for the integrated treatment of trade and development and inter-related issues in the areas of finance, technology, investment and sustainable development, has an important contribution to make in strengthening multilateralism in trade and development relations to advance the Sustainable Development Goals.

The paper also posed the following questions for the Trade and Development Board to consider:

(a) Amid the current retreat from multilateralism and the crisis in rule-ma king in the multilateral trading system, what actions should the international community take to strengthen a revival in international trade and revitalize the multilateral trading system? How should the international community ensure that multilateralism brings about transformative impacts under the Sustainable Development Goals and enables trade to bring shared prosperity?

(b) The symptoms of discontent with multilateralism and trade should not be left unaddressed, yet what should policymakers do to enable international trade to deliver on the Sustainable Development Goals? Can trade policy be, at the same time, poverty sensitive, gender sensitive, labour sensitive, environmentally sensitive and climate friendly?

(c) Given that crises can trigger change, what does the future portend for the United Nations and its development machinery in enhancing the contribution of trade to sustainable development? What should be the contribution of UNCTAD?