LDCs in the global market: Barriers and constraints

WTo a large extent market access is determined by the range of tariff and non-tariff barriers in foreign markets. However, the capacity of LDCs to use market access opportunities available to them is also affected and linked to domestic supply side and policy constraints. LDCs also connect market access barriers with domestic obstacles to expand trade and structural limitations in achieving productive efficiency and competitiveness.

Effective market access of LDCs can also be linked with a number of supply side conditions. The consistent implementation of domestic policy reforms to create a stable, competitive and sound macro-economic environment is a precondition for participating in the multilateral trading system. Adequate infrastructural development is essential to ensure efficient delivery of goods and services. The provision is needed to enhance and improve technology to address domestic supply constraints for viable trading environment. Active participation in multilateral trade policy process under WTO is a must for market access as it is only one dimension of a complex relationship for trade development of LDCs.

Trade is a powerful engine to boost up the economy of any country and a quarter of the world economic output is gained by export. One third of the 25 largest trading countries are developing countries. In contrast trade accounts for a small share of the economic activities in most LDCs and represents a relatively small percentage of the GDP. Whereas in developing countries, on an average, trade accounts for some substantial percentage or slightly more than the GDP while in LDCs it is slightly more than 16 percent of the GDP. The growth of export of the LDCs have grown slowly than that of world trade in the last 20 years and their share of global merchandise trade has declined from the 1980s–0.8 per cent approximately to 0.46 per cent in 1995 (WTO report). Most LDC’s exports go to 23 main markets of the developed countries. Some 60 per cent of their exports go to EU. Japan and US, 33 per cent to developing country markets, including Brazil, China, Taipei, Hong Kong, India, Indonesia, Korea, Malaysia, Singapore, South Africa and Thailand.

The structure and composition of LDCs export generally show little diversification and have barely changed in the last two and half decades. A study of OCED showed that under 6 digit H.S coding system out of 5000 traded products only 112 items are covered by LDCs except Bangladesh. Haiti, Laos, Madagascar and a few other countries. The manufacturing sector, particularly textile and clothing constitute more than 20 per cent of LDCs exports and are significant for a few countries like Bangladesh.

Evaluations and analysis show that barriers in market access as indicated generally by LDCs are frequently similar to that of obstacles to trade expansion. This gives rise to a question about main difficulties as to whether they are of market access or supply. An UNCTAD study established an interconnected relationship between market access to supply constraint. Against this background, LDCs export constraints may be classified under two broad headingA. They are Market Access Barriers and Supply side Constraints.

The market access barriers include tariff, non-tariff measures such as quota, tariff-rate quota, products standard, testing certification, packaging and labelling requirements, conditions applied under regional markets and regional trade agreements and attached to preferential schemes, rules of origin, difficulties in trade finance and movement on natural persons, lack of information on market access opportunities and trade distortions in third market.

The supply side constraints include economic issues such as prices, incentives, interest rates, currency convertibility coupled with weak regulatory environment, poor infrastructure, difficulties in achieving economies of scale, skill and other structural factors, institutional issue and regulatory environment.

Two key issues define LDCs trade services. The first is the very small share of the LDCs in global export of services. The second is extent of LDCs commitment under trade in service agreement and future negotiations, determined by two objectives: to attract FDI and protect the domestic infant industries.

Service trade is one of the fastest growing areas of the world economy. Export of world commercial services rose by five per cent attaining a value of US$ 1.26 billion in 1996. Service trade to a large extent requires skilled and specialised manpower with adequate knowledge in Information Technology. LDCs are yet to develop capacity significantly in these areas. 25 leading trading nations accounted for over 80 per cent of trade in merchandise and commercial services. The bulk of LDCs export is not based on service, rather on merchandise and semi-processed commodities. Export of services is extremely limited in most LDCs. In order to diversify their economies and to integrate into globalisation process, some LDSs are giving priority to develop their service trade. In an endeavour to improve service trade LDCs of the WTO members made commitment under GATS.

Prior to the recent financial crisis in the East and South East Asia there were reasonable prospects for increased market access opportunities in the emerging economies. Those prospects have been diminished due to several factors including the downtrend of GDP of many countries, mainly in East and South East Asia, fall of commodity prices, reduced export earnings leading to contraction in economic growth rate, currency depreciation and devaluation in many East Asian countries, significant reduction in import of goods and services leading to trade surpluses alongside the output contraction in goods and services of some East and South East Asian countries.

So far there is little evidence of a surge in export except a little increase in volume, because American and European markets have strengthened domestic anti-dumping and safeguarding mechanisms to take care of any destabilizing surge of imports from economies with devalued currencies.

The financial crisis has led to a downturn in trade finance, credit guarantees and insurance cover for export. This reduction of trade financing may impede the ability of LDCs to increase their exports in the emerging markets.

A complex interplay of factors impedes the market access in export of goods and services of LDCs. Some difficulties are common to all while others may be applied differently to individual countries. Solutions will need to be far-reaching and consistently pursued. Broadly possible solutions may be categorized into three main groups which are elimination of market access restrictions including tariff and non-tariff measure, resolution of domestic supply-side and capacity inadequacies that prevent the utilisation of market access opportunities and consistent pursuit of domestic policy reforms by LDCs

Apart from these, the following suggestions may be applied for promoting the export sector of LDCs. These are automatic implementation concession on tariff and non-tariff measures agreed in the Uruguay Round on items of export interest to the LDCs, duty free access in export of the LDCs, elimination of other distortions to encourage increased value addition in export of the commodities of the LDCs ,improvement of the functioning of preferential trade scheme in favour of LDCs, systematic changes in the preferential trade schemes, enhancing the implementation of regional trading arrangement comprising LDCs, steps to improve provision of technical assistance for LDCs for better integration into multilateral trading system, reviewing options to improve trade financing for LDCs, effective implementation of GATS concerned articles for Mode 4, greater commitments by LDCs in their own schedules of specific commitments with the aim to reinforce confidence of the potential investors.

The writer is former Director General, EPB. He can be contacted at hassan.youngconsultants@gmail.com