Features

A step in the right direction for trade in sustainable development goals

16 September 2014
ITC News
Small and medium-sized enterprises (SMEs) represent the 95% of the global economy and are a core engine of growth in developing nations.

A UN open working group charged with developing a proposed set of global sustainable development goals (SDGs) wrapped up 18 months of discussion in mid-July, endorsing 17 suggested goals and 169 targets to replace the Millennium Development Goals (MDGs), which expire next year. In the MDGs, trade policy was included in Goal 8 – develop a global partnership for development – chiefly as an enabler of economic growth through improved market access for developing-country exports. Commentators involved in the SDG-debate over the past months have argued that the new framework should provide an opportunity for trade policy to be a more integral part of development plans. Roberto Azevêdo, Director-General of the World Trade Organization (WTO), recently stressed that trade’s role in the post-2015 agenda should ‘not be reduced simply to trade liberalization. Rather, trade should be recognised more broadly as a development policy instrument.’

To a degree, the recommended SDG framework (or post-2015 development agenda) reflects this more integrated approach to trade and sustainable development, as the proposed SDGs feature a number of trade-related objectives. Some are cross-cutting means of implementation (MoI) for the whole framework, including concluding the Doha Round and increasing developing country exports and market access for least-developed countries (LDCs). Other trade-related targets are placed under relevant goals across the framework.

For example, the proposed goal 8 on sustained, inclusive economic growth is supported by an MoI target for increasing Aid for Trade. This retains the idea reflected in MDG Indicator 8.9 about the proportion of overseas development assistance dedicated to trade capacity. The integration of trade-related targets under relevant goals, such as reducing harmful fisheries subsidies under the proposed goal regarding oceans and preventing trade restrictions in agricultural markets under the proposed goal on ending hunger, reflects the idea that a coherent policy framework including carefully designed trade-related policy can help integrate economic, social and environmental objectives.

With 95% of the global economy comprised of small and medium-sized enterprises (SMEs), such producers form the backbone of the global economy and are a core engine of growth in developing nations. A number of trade-related targets in the framework focus on ensuring that smaller producers have access to essential inputs, particularly natural resources, financial services and access to markets.

ACCESS TO MARKETS

Proposed goal 2 on ending hunger includes a target on doubling by 2030 the agricultural productivity and incomes of small-scale food producers through improving access to land and other inputs, financial services and markets for their products. Proposed goal 14 on the conservation and sustainable use of oceans and seas includes a specific MoI target devised around improved access to marine resources and markets for small-scale artisanal fishers.

Access to finance plays an essential role in the mechanics of world trade and has been cited by developing countries as one of the main constraints to global value chain participation (Aid for Trade at a glance: connecting to value chains, WTO/OECD, 2013). Proposed goal 8 on sustainable economic growth and employment lists a target meant to encourage the formalization and growth of SMEs, including access to financial services. The proposed goal 9 on resilient infrastructure, sustainable industrialization and innovation similarly includes a target to increase the access of developing countries’ small-scale enterprises to financial services, affordable credit and value chain integration.

While there is much to be welcomed in the proposed SDG framework on the trade front, some gaps remain. Two of particular relevance for SMEs are improving traders’ ability to physically move goods across borders and recognizing the importance of services in economic diversification and development.

INFRASTRUCTURE FOR TRADE

A previous version of proposed goal 9 included a target built around improving trans-border infrastructure to promote regional connectivity and facilitate trade. The proposed SDGs roll trans-border infrastructure into a broader target around developing high-quality, accessible infrastructure to support economic development. As trade can be an important engine of development, a specific reference to investing in infrastructure that eases the movement of goods across borders may be worth retaining.

While trade facilitation is useful to all traders, it is particularly helpful for small enterprises, which often have less capacity to absorb the costs imposed by poor infrastructure and excessive regulation. Furthermore, it would be a useful way to support their ability to use the access to markets provided under other SDG targets.

SERVICES AND GROWTH

While the proposed SDG framework rightly emphasizes the importance of financial services – as a key input for SMEs, the SDGs could underline the importance of export credit and trade finance for small exporters and more explicitly reflect the importance of services in the diversification and development of economies as a whole. This could in turn provide opportunities for small enterprises. Research by the World Bank sets out how growth in services is correlated with poverty reduction and contributes to employment (The Service Revolution, 2010). The International Trade Centre has also pointed out the importance of opportunities in service industries for SMEs, noting that Rwanda, Senegal and other African LDCs already have policies in place to support export of outsourced services. While reference is made in the proposed goal 8 for economic diversification, the development of sustainable tourism and strengthening the capacity of domestic financial institutions, overall, the framework seems to put greater weight on diversification towards industrial sectors. Including an explicit reference to supporting economic diversification towards services more generally could help to more clearly integrate an important source of employment, poverty reduction and development into the framework.

A similar argument has been made by other commentators, including From the Millennium Development Goals to the Sustainable Development Goals: Learning the lessons from the trade diagnostic studies in the Pacific. (Gay, Keane and Basnett, Overseas Develop- ment Institute, 2014).

Services already account for two-thirds of world output and employment, and are projected to continue to expand at all levels of development. Successfully harnessing these modern engines of global growth should be an important part of a framework that seeks to provide a roadmap for international development for the next 15 years.