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Trade and Investment in the Post-2015 Agenda

What role should the EU play?

April 2013

Keane, J., Basnett, Y. 2013. Trade and investment in the post-2015 agenda: What role should the EU play? GREAT Insights, Volume 2, Issue 3. April 2013. Maastricht: ECDPM

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The MDGs did not pay sufficient attention to economic development. An active economic dimension must feature within the post-2015 agenda, to be anchored on a growth agenda, where trade and investment policies are seen as critical levers. The EU has a critical role to play in this process.

The focus brought by the Millennium Development Goals (MDGs) has produced noteworthy achievements in improving health and education outcomes as well as reducing poverty. But a key limitation of the MDGs was their failure to include dimensions of structural transformation and integrate the development of productive capacities. This meant that while issues of social development were largely addressed (mostly through aid), the MDGs did not pay sufficient attention to economic development. Now is the time to address this imbalance.

Any post-2015 global development agenda will arrive in a dramatically changed landscape of trade and investment compared to the time of the inception of MDGs. Emerging economies are accounting for an increasing share of the trade and investment portfolios of low income countries (LICs) and least developed countries (LDCs). These changes are being shaped by shifts in global value chains (GVCs) and production networks (GPNs), with Asia having emerged as a manufacturing hub. This evolving global context presents both opportunities and challenges for marginalised and vulnerable economies. However, LICs and LDCs currently face a number of economic challenges, which can limit their ability to both tap into and leverage these more dynamic forms of trade and investment flows for development.

To ensure that strategies adopted to achieve sustainable development are themselves sustainable, an active economic dimension must feature within the post-2015 agenda. This economic dimension must be anchored on a growth agenda, where trade and investment policies are seen as critical levers. This article discusses the potential role of European Union (EU) trade and investment policies within the post 2015 agenda. Because the EU is by far the largest market for LDC exports at the current time, how it chooses to position itself matters for such economies.

The Dragon Dance: Synchronising the actions of new and old actors towards a common goal

Notwithstanding important structural changes on-going within the global economy – which we expect to continue – the EU is at the current time the major trading partner for LDCs and LICs. Nevertheless, increasingly emerging economies are becoming important players: for many LICs, exports to developing countries have increased from around one-half to over two-thirds during the previous decade (1).

FDI flows to LICs from Brazil, Russia, India and China (BRICs) have increased rapidly over the past decade; amongst the BRICs, China has been the biggest investor in LICs, with Chinese FDI stock experiencing a 20-fold increase between 2003 and 2009 (2). The re-orientation of the global trade and investment landscape consisting of new and old actors present developmental opportunities and challenges for LDCs and LICs. For example, the Asian region is increasingly operating as a manufacturing hub – referred to as ‘factory Asia’ (3) – with other countries and regions either being integrated into this international division of labour or being left out. Overall trends in consolidation across marketing and retailing nodes, which have become much more apparent in recent years, suggest that all types of trade are progressing towards more hierarchical and buyer-driven types of GVC governance structures (4).

 

There is a need for more creative policies to tackle the structural problems that hamper the development of LDCs’ export capacities, for example resulting in the specialisation of primary commodities, rather than incentivising structural economic transformation. The post-2015 agenda needs to engage with these shifts and leverage potential new opportunities, whilst at the same time addressing risks of exclusion. There is increasing recognition of the need for global policy-makers to acknowledge and deal effectively with the structural shifts in terms of how trade flows: between nations, but coordinated by transnational and multinational firms which operate on an intra- and inter-firm basis.

For example, a recent strategy document on the formulation of an integrated industrial policy for the globalisation era for the EU, states that success in the intensively interacting new world economy depends on enterprises’ ability to access international markets and exploit global value chains (5). This strategy document also makes clear the need for the development of an industrialisation policy that is fit for the globalisation era. The challenge for all policy-makers is to ensure that the economic benefits derived from participation in GVCs and GPNs facilitate rather than hinder the development of productive capabilities. This in turn depends on having effective governance structures in place, both in terms of how firms interact and in relation to how governments interact with firms. This is an area where the EU can exert its influence.

Within the multilateral governance structure, the Doha Development Round (DDR) remains at an impasse. The fact that there has been so little progress might suggest that it is not trade multilateralism as such which is at an impasse, but rather multilateralism in general as an approach to solving global issues. This hiatus calls for alternative development partnerships to be formulated, which could subsequently be brought into the framework of multilateral rules: a world without an active and live multilateral framework is likely to most disadvantage and further marginalise the LICs and LDCs. To play such a role there may be a need to de-couple the World Trade Organization from a rather narrow trade liberalization agenda, and instead associate it with an agenda for leveraging a broader set of trade policies for solving emerging global challenges (6).

How can the EU help?

The European Commission’s most recent communication on trade and development recognises that the landscape of trade and investment has changed dramatically in recent years(7)Although many of the reforms proposed are welcome, the EU needs to be bolder and use its unique position to lead in formulating more creative solutions to the trade and investment challenges faced by LICs, and to engage middle income countries in the process. It should also ensure that its reforms certainly do not contribute to the undermining of the progress made in meeting the MDGs to date. Some suggestions which have been drawn from our contribution to the forthcoming European Report on Development, and the background papers commissioned (8)include:

Making trade preferences more effective: The adverse potential macroeconomic effects of commodity dependence, as well as overseas development assistance flows more generally, strengthens the case for trade preferences. A number of measures could make trade preference more effective, including the improvement as well as harmonisation of rules of origin, across regimes. Better targeted preferences that take into account changes in global trade could play an important role in helping LDCs and LICs integrate into dynamic global, as well as regional, supply chains. New preferences in new areas could also be offered in services trade.

Supporting trade facilitation: There are new opportunities for firms that can reduce their cost of importing and exporting in global markets. The Commission’s recent proposals on trade facilitation are to be welcomed, but need to be put into practice. Moreover, there is scope for targeting EU’s Aid for Trade towards alleviating the constraints LIC producers face in exporting to EU (9).

Reducing vulnerabilities to external shocks: The EU could be more ambitious in enhancing resilience building efforts in the broader field of programmable aid, in addition to some reform of shock facilities and their operationalization; designing effective ex-ante rather than just ex-post interventions – aimed at preventing the emergence of vulnerabilities at a more macro level.

Enhancing productive investments: A post-2015 investment framework needs to take into account changes in the investment landscape and encourage a shift in flows towards LICs and LDCs whilst at the same time ensuring their sustainability. This could include through integrating investment policy in development strategy; incorporating sustainable development objectives in investment policy; and enhancing institutional capacity and quality.

Championing global economic cooperation: There is a need for a new framework for global economic cooperation that is inclusive of new actors, accountable to a wider set of stakeholders and responsive to emergent crisis. This could be in the form of what Pascal Lamy has referred to as the ‘triangle of coherence’ – achieving coherence between the G20, membership driven specialised agencies and the U.N. General Council (10). The EU could position itself in all three nodes of the triangle and play a leading role in championing a global framework for economic and development cooperation that is fit for purpose in the 21st century.

Jodie Keane is a Research Fellow working on EU Trade Policy, Global Value Chains, and Trade and Climate Change regimes with ODI. Yurendra Basnett is a Research Fellow on Trade and Development policies at ODI; his recent research has focused on the role of trade and investment policies in the post 2015 development agenda.

Footnotes

1. Stevens, C. (2012), ‘EU trade policy’s contribution to a post-2015 consensus on international development: co-ordinated and differentiated EU trade, investment and development policy’, Background paper for the European Report on Development 2013, Brussels: EU. 
2. Mlachila, M. and Takebe, M. (2011) ‘FDI from BRICs to LICs: Emerging Growth Driver?’, IMF Working Paper WP/11/178, Washington, DC: International Monetary Fund.
3. Baldwin, R. (2008) ‘Managing the Noodle Bowl: The Fragility of East Asian Regionalism’, The Singapore Economic Review (SER), World Scientific Publishing Co Pte. Ltd., Vol. 53(03): 449-478.
4. Keane, J. (2012a) ‘The governance of global value chains and the effects of the global financial crisis transmitted to producers in Africa and Asia’, Journal of Development Studies 48(6):783–797. 
5. EC (2010) ‘An Integrated Industrial Policy for the Globalisation Era – Putting Competitiveness and Sustainability at Centre Stage’, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, COM (2010) 614 final, Brussels: European Commission. 
6. See www.odi.org.uk/opinion/6212-time-world-trade-organization-change-tack 
7. See http://ec.europa.eu/trade/wider-agenda/development/; for a collection of essays which comment on this document see http://www.odi.org.uk/sites/odi.org.uk/files/odi-assets/publications-opinion-files/7727.pdf 
8. See Nissanke, M. and Kuleshov, A. (2012) ‘An Agenda for International Action on Commodities and Development: Issues for EU Agenda beyond the MDGs’, Background paper for the European Report on Development 2013, Brussels: EU. And Stevens (2012).
9. Basnett, Y. (2012). The EC communication on trade, growth and development: A targeted approach to promoting Aid for Trade effectiveness. In D. W. Te Velde (ed.), The next decade of EU trade policy: Confronting challenges? www.odi.org.uk/resources/docs/7747.pdf 
10. See www.wto.org/english/news_e/sppl_e/sppl133_e.htm

This article was published in Great Insights Volume 2, Issue 3 (April 2013)

Economic Transformation and TradeEuropean external affairsEU Development Policy and PracticePost-2015 Global Development AgendaMillennium Development Goals (MDGs)Post 2015Trade

External authors

Jodie Keane

Yurendra Basnett