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Commonwealth Secretariat press release

New study supports lifting of barriers against LDC exports

17 May 2001

Attention Economics Editors:

The Third United Nations Conference on Least Developed Countries (LDCs), taking place in Brussels, Belgium, 14-20 May, is aimed at combating economic isolation and poverty in the world's poorest countries. To coincide with the meeting, the Commonwealth Secretariat and the UN Conference on Trade and Development (UNCTAD) today published in Brussels their joint findings on an initiative seen as a weapon in the LDCs' fight against poverty and a boost to their economies.

This new study into ways of improving exporting conditions to the European Union (EU) for LDCs has concluded that the EU will not lose out if barriers to LDC exports to Europe are removed, as there will be only a small increase in the LDC exports. On the other hand, the increase in the level of their EU exports though modest, will have a positive impact on the economies of LDCs and help their development.

The study, entitled Duty and Quota Free Market Access for LDCs: An Analysis of Quad Initiatives, was jointly undertaken by the Commonwealth Secretariat and UNCTAD. Of the 49 countries categorised as LDCs, 15 are Commonwealth members. The study examined the potential economic effects of the recent EU 'Everything But Arms' (EBA) initiative on different groups of countries, including the least developed ones. The EBA initiative will see the gradual elimination of tariffs and other trade barriers on all goods (except arms) coming from least developed countries.

The LDCs have been struggling to find ways to make international trade a more pragmatic tool for development. Efforts to improve exporting conditions for them have prompted a number of countries to grant these countries non-reciprocal market access, the latest such initiative being the EBA proposal.

The study also considered the possible impact if other countries in the 'Quad' with the EU (namely the United States, Canada and Japan) were to follow in the EU's footsteps by adopting EBA-type policies towards the least developed countries. The study included case studies of Bangladesh and Mauritius.
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As of 1999, 37 per cent of LDC exports were to the European Union, 27 per cent to the US, 4 per cent to Japan and 1 per cent to Canada. Collectively, these four markets accounted for 69 per cent of total LDC exports. However, within these markets there is considerable variance in the level of market access offered to LDCs. Prior to the EBA proposal, the EU offered the best market access, with less than 3 per cent of LDCs exports facing a tariff barrier. Furthermore, this protection was only in agricultural products. For the other three Quad members, however, this figure rises to approximately 50 per cent of the total value of exports. The bias of protection against LDC exports is reflected in the composition of tariff lines that hinder them. In Canada, Japan and the US, only 18 per cent, 12 per cent and 17 per cent respectively, of tariff lines affect LDC exports. The protection is therefore concentrated in only a few sectors of key importance to LDCs.

The impact of the removal of the remaining level of protection in the EU, except for arms, will be a small increase in exports from LDCs. The largest increase in percentage terms will be from Malawi, Tanzania and Zambia. Despite the fact that Bangladesh is the largest LDC exporter, the predicted change in its volume of exports will be small. This is due in large part to its strength as an exporter of textiles and apparel products, products already liberalized before the EBA initiative.

The estimated impact on the EU from extending its preference scheme to cover all products except arms is negligible in every respect. The only sector of concern is sugar, but this impact has been qualified by the extended transition period. Negligible impacts are also expected for the rest of the world.

If Canada, Japan and the US follow the lead of the European Union, LDC exports will increase by a moderate amount. The largest single source of this gain will be from Bangladesh, although as a region Sub-Saharan Africa stands to gain the most. The reason is the high level of protection applied by these three Quad members to the textile and apparel industry, where Bangladesh has become internationally competitive over the past decade.

The study also highlights the resource allocation effects arising from the discriminatory nature of country and product coverage of the preferential schemes. LDCs have been focusing their industrial policies on enhancing sectors with greater market access in developed countries, as opposed to their comparative advantage. Unless market access is uniform and liberal, preference schemes can require significant structural adjustment, including employment losses in sectors that were insulated from competition due to the preference margin. Therefore, a uniform level of preference, such as that offered by the EU, is more beneficial to LDCs than a piecemeal preference policy, such as that currently offered by the other Quad members.

The struggle of the LDCs to improve their prospects for development has been a difficult one. International trade represents only one component of the fight against poverty and for development. It should not be used in isolation, separate from a range of other polices that can be implemented at the national, regional and international level. Nevertheless there is now an opportunity for the developed countries, especially Canada, Japan and the US, to make a significant contribution to enhancing the role of trade in the development process of the LDCs, the study concluded.


Note to Editors:
The 15 Commonwealth countries among the LDCs are: Bangladesh, The Gambia, Kiribati, Lesotho, Malawi, Maldives, Mozambique, Samoa, Sierra Leone, Solomon Islands, Tuvalu, Uganda, the United Republic of Tanzania, Vanuatu and Zambia. Prime Minister Sheikh Hasina of Bangladesh is the spokesperson for the LDCs.

At the 1999 Commonwealth summit in Durban, South Africa, Commonwealth leaders expressed concern that although globalisation is creating unprecedented opportunities for wealth creation and for the betterment of the human condition, its benefits are not shared equally. In a key statement, the 'Fancourt Commonwealth Declaration on Globalisation and People-Centred Development', they stressed among other things that there must be greater equity for countries in global markets, and also called for dismantling of trade barriers for the mutual benefit of all.




01/33 17 May 2001
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