Making policies work

GREAT insights Magazine

A World to Gain: Going Faster and Further in Development

01-11-2013

Ploumen, L. 2013. A world to gain: Going faster and further in development. GREAT Insights, Volume 2, Issue 8. November 2013. Maastricht: ECDPM

This article by the Dutch Minister for Foreign Trade and Development Cooperation offers various insights into the merits and limits of international trade and development and the Netherlands’ new strategic agenda, which bridges the traditional divide between aid and trade.

Development is about progress. Remarkably, in a world that seems dominated by recurrent crises, quality of life has improved substantially for hundreds of millions of people. This progress has been achieved through a combination of economic growth, government policies, the engagement of civil society, and a global commitment to the Millenium Development Goals (MDGs). Many people across the globe now enjoy a better standard of living.

Yet we have to go further and faster. Growing inequality between the global rich and the global poor, mounting pressure on scarce resources, the impact of climate change and instability in fragile states are undermining the gains that have been made. In a world that suffers under such pressure, the need for international cooperation has never been greater.‘Business as usual’ is no longer a viable option: we must explore new horizons.

My recent policy paper, entitled ‘A World to Gain’, describes a unified agenda that bridges the traditional divide between aid and trade. Some people regard ‘aid versus trade’ as a zero-sum game: they fear that an increase in international trade will benefit prosperous countries like the Netherlands at the expense of developing countries. Yet, in my view, the aid and trade approach should clearly benefit both.

The lesson to be learned from every emerging economy – and many of the world’s fastest growing economies are in Africa – is that impressive social gains can be made by pairing economic growth with public spending. Conversely, failing to address poverty, weak governance, and inequality renders economic growth unsustainable.

Former aid recipients want to be seen as equal partners: they welcome foreign investment. When I visited Bor in Southern Sudan, a local government official surprised me at the end of our talk by saying, ‘The visit was fruitful, but next time, please bring some investors with you as well.’ The key is to establish mutually beneficial ventures in which the partners are on an equal footing. Jointly defining an agenda for boosting trade and promoting the rule of law, well-functioning institutions and social change can pave the way for further economic growth. However, I would add one caveat: as a guiding principle, growth must be inclusive and sustainable.

This approach can bring together two worlds that have long been separate. I do not deny that it may cause friction and that hard choices will sometimes have to be made. However, there is much to be gained by seeking common ground and combining agendas that both benefit the poor in developing countries and stimulate business for Dutch companies.

Building a trade relationship starts with opening up markets and promoting private sector development. Entrepreneurs in low- and middle-income countries can then sell their products on European and Dutch markets, while Dutch entrepreneurs gain access to the developing countries’ markets. For trade to be possible, the conditions enabling investment and enterprise need to be in place. To this end, we are promoting a positive investment and business climate in low- and middle-income countries. At present, Dutch companies focus on Europe, so we are helping them internationalise their operations. For example, the Dutch Good Growth Fund was established to help Dutch small and medium enterprises (SMEs) invest in developing countries and to enhance local enterprise development.

Economic diplomacy is an increasingly important way of providing Dutch companies with access to sectors like water and energy, which are often dominated by government, and to markets in more remote low- and middle-income countries. Fortunately, we do not have to start from scratch. The experience and networks gained through many years of development cooperation in partner countries make it easier for us to expand our economic ties. In many countries, impressive results have been achieved: in Ethiopia, Dutch companies have boosted the export of locally grown flowers, and in Colombia new technology has been used to improve construction in slum areas subject to frequent flooding.

The Netherlands is implementing our strategy for aid, trade and investment in three groups of countries. In fragile states and countries that lack sufficient capacity to reduce poverty on their own, we focus on aid relationships. In transitional countries with burgeoning economies, we engage in poverty reduction activities while helping to improve the business climate, develop the private sector and stimulate investment. Our focus here is on low- and middle-income countries like Ghana, Kenya, Indonesia, Bangladesh, Ethiopia, Mozambique, Uganda and Benin. Finally, in a third category of countries (e.g. China, Brazil), our relationship focuses on promoting trade and investment that directly benefits economic growth and employment in the Netherlands.

In transitional countries in particular, it is clear that trade and investment do not automatically lead to sustainable and inclusive growth. It is my aim to encourage forms of investment and trade that are good for people, planet and profit, and to create employment opportunities, preferably accompanied by the transfer of knowledge and skills. The cornerstone of this approach is encouraging and facilitating international corporate social responsibility.

This agenda and approach are in evidence in Bangladesh, where the Netherlands is working closely with the Bangladeshi government, the International Labour Organization (ILO), the garment industry, companies, international donors, trade unions and non-governmental organisations (NGOs) to improve working conditions in the ready-made garment industry. As recent disasters in Bangladeshi garment factories have shown, workers are often subjected to unsafe conditions – in some cases in violation of their human rights. With the support of the Netherlands, a new Bangladeshi labour law has been enacted, and garment factories will be thoroughly inspected and renovated. At my request, Dutch companies have also adopted a Plan of Action for a Sustainable Garment Sector. A sustainable value chain in this sector will benefit all parties, including international enterprises, local factory owners and factory workers.

Achieving a level playing field through the World Trade Organization (WTO) and the Economic Partnership Agreements (EPAs) presents another crucial challenge in order to foster economic growth and poverty reduction systemically and globally.

Developing countries cannot generate economic growth or reduce poverty if they fail to engage in trade and integrate into the global economy. WTO members have expended considerable effort on improving the position of least-developed countries (LDCs) in the multilateral trading system, in terms of both market access and technical assistance. But there is a lot more to gain for these countries.

These countries now clearly have more influence over the agenda of WTO negotiations thanks to their active participation and the coalitions they have successfully formed. Serious consideration should be given to their concerns by offering as many new trading opportunities as possible and by simultaneously helping them adjust to and to reap the benefits of trade liberalisation. It is crucial that we support these countries in their efforts to carry out reforms and escape the marginalisation of past decades.

The 9th WTO Ministerial Conference (MC9) in Bali is within sight. It is very important to reach a deal on elements of interest to LDCs by the end of the year and to provide a coherent approach to trade and development. Especially for Africa, it is vital that promises are translated into quantifiable results. In our view, the coming Ministerial Conference is essentially about two things: achieving a successful multilateral trade deal for the world and further integrating developing countries into the world trade system, especially the LDCs.

Trade facilitation is the core issue: reducing red tape and enhancing customs procedures is critical for the LDCs to tap into global value chains. In many developing countries, clearance times for exports and imports have a major effect on the competitiveness of local industry. Indian companies suffer an estimated 37% cost disadvantage in shipping clothing from Mumbai to the United States compared with Shanghai, purely as a result of delays and inefficiencies in Indian ports. Global and regional development banks are ready to contribute.

Tunisia’s export development programme is a good example of the importance of trade facilitation. At the start of the programme, it was estimated that the customs and logistics components of the programme would reduce cargo delays by about two-thirds – from an average of 10.1 days in 2003-04 to 3.3 days in 2010. Not only were significant results achieved at the border, but the programme increased exports by more than US$400 million by May 2010, with over one-third of this amount being represented by new exports to new markets. Moreover, according to the case history, the programme resulted in the creation of some 50,000 full-time and 50,000 part-time jobs for the firms involved.

In addition, the Economic Partnership Agreements (EPAs) offer opportunities for expanding trade, for both developing countries within Africa and the global market. We strongly believe that EPAs can bring important benefits to the African Caribbean and Pacific (ACP) countries. EPAs can foster their integration into the world economy by advancing regional integration and South-South trade. We must ensure coherence between trade liberalisation and development assistance in order to ensure that the ACP countries can seize the opportunities offered by the EPAs. The pursuit of development is a multi-dimensional undertaking. Capitalising on the benefits of trade integration also requires institutional capacity-building and associated adjustment measures.

The EPA negotiations are still ongoing. While progress has been made, contentious issues still remain. It has been difficult to find common ground on some points. The debate over the potential costs and benefits of a full EPA, especially in African countries, has been an issue since the start of the negotiations. At the same time, many countries are concerned about whether their private sectors can compete with companies from the EU.

The EPAs are not regular Free Trade Agreements. I regard the further integration of these countries into the production and trade chain as a major advantage. EPAs are geared to promoting countries’ development and therefore include provisions on cooperation.

It is important to inject the development dimension fully into the EPAs and incorporate asymmetry as far as possible. This means we should make full use of the flexibility and asymmetry permissible under current WTO laws, so as to reflect the current variations in development levels and needs of the ACP countries and regions.

2014 is a pivotal year for the negotiations on EPAs. To move the process forward, trust and mutual understanding are essential. The outstanding issues are relatively clear. It is therefore of utmost importance that all parties show full commitment to concluding negotiations soon. By allowing these talks to linger on, precious opportunities for the private sector in Africa will be wasted.

The Netherlands wishes to play a constructive role in the dialogue on EPAs between EU and African stakeholders. In the coming months I will engage with local stakeholders from the private sector, civil society and government to hear their views on EPAs and identify options for moving the negotiations forward.

In a world of increasing global challenges, I see a clear need for innovation. World trade has been growing impressively and will continue to do so. Combining aid and trade will provide the right incentive to capitalise on growth and make it sustainable and inclusive. Aid can trigger investment by Western companies in low- and middle-income countries and provide jobs for poor and excluded groups.

I see this as an opportunity that must not be missed. What we need is allies, partners in both the North and the South who understand that a window of opportunity is opening up and are willing to take concerted action. I hope that many other countries will join us in exploring these new horizons together.

Lilianne Ploumen is the Minister for Foreign Trade and Development Cooperation of the Kingdom of the Netherlands.

This article was published in GREAT Insights Volume 2, Issue 8 (November 2013).

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Economic Transformation and TradeTrade Policy and Economic Partnership AgreementsEconomic Partnership Agreements (EPAs)European Union (EU)TradeWorld Trade Organisation (WTO)AfricaCaribbeanEuropePacificThe Netherlands

External authors

Lilianne Ploumen