Trade Forum Features

Increased growth through regional integration

30 September 2013
ITC News
Maintaining the momentum on making trade work for regional growth and development.

The Fourth Global Aid for Trade Review held in July 2013, in which I played an active role, both emphasized the importance of Aid for Trade and illustrated how deeply rooted the initiative is in the global development landscape. Since the launch of the Aid-for-Trade Initiative in 2005, trade has become increasingly mainstreamed in development strategies, including by least developed countries (LDCs). Donor countries have mobilized considerable financial resour-ces and emerging economies are starting to follow suit, encouraging stronger South-South cooperation. The private sector, too, is playing an increasingly important role in this global endeavour. This is a major achievement. It reflects the now firmly established consensus that trade is critical to ensuring growth for developing economies.

The European Union (EU) has been at the forefront of global Aid-for-Trade mobilization. Together, the EU and its member states have been the world’s leading provider of Aid for Trade. The EU has supported a wide range of projects, from providing technical assistance to Viet Nam to accelerating its World Trade Organization (WTO) accession, supporting Uganda’s exports of organic products, helping Bangladesh’s exports comply with EU quality standards, and boosting regional integration in the Caribbean. The Fourth Global Aid for Trade Review reconfirmed the EU’s decision to focus its Aid for Trade on the general business environment, private-sector development, regional integration and connection to world markets.

While the global development community should be proud of its achievements, there is no room for complacency – much remains to be done. The Fourth Global Aid for Trade Review identified two major challenges. The first is helping developing countries, particularly the poorest among them, to fully integrate into global value chains: doing so is key to economic growth. The second is the need to bring down costs related to logistics, customs procedures and other border formalities because these are now much higher than those resulting from tariffs.

I fully endorse these two priorities and wish to add a third – one which is in fact deeply intertwined with the other two: regional integration.

The EU, with its single market, is the prime example of the benefits of regional integration. The EU knows from experience that integrating relatively small markets into a larger one allows firms to benefit from economies of scale. A larger market is also more attractive to investors. And, because European firms can spread their activities across the continent, they can be more competitive not only domestically, but also in the wider global market. This has been part of the formula that has turned the EU into the world's largest economy.

Developing countries and – most importantly – the people living in these countries stand to gain much in this respect.

To export, countries increasingly need to have access to imported equipment and to intermediate goods and services. Integrating into global value chains is central to this. Yet trade barriers between developing countries in the same region are usually very high, increasing the cost of imports, reducing competitiveness, and making it more difficult to export.

This is the case in Africa, whether because of high tariffs on goods or because of lengthy and costly procedures to move goods across borders. For instance, on average, Organisation for Economic Co-operation and Development (OECD) countries require five documents at customs, and it takes just 10 days to clear goods at a cost of about €735 per container. In contrast, African countries require on average twice as many documents, up to 35 days to clear exports and 44 days to clear imports, at an average cost per container of €1,285 for exports and €1,535 for imports per container. Thus, whereas intra-EU trade represents about 60% of total EU trade, intra-African trade flows make up only for 10% of African trade. The result: high domestic prices and poor connectivity to foreign markets. The WTO trade facilitation agreement currently under negotiation could play a major role in resolving this situation by cutting red tape, increasing predictability and reducing costs for traders.

Beyond its immediate benefits, regional integration is a stepping stone to global integration. Regional and global value processes are mutually supportive. Regional value chains can be a springboard towards better connection to global value chains. In the same way, bilateral or region-to-region trade partnerships can be an effective step towards multilateral liberalization. By opening trade on a limited scale, these agreements prepare countries for more wide-ranging liberalization.

Regional integration is something the EU has been promoting tirelessly over the years through its trade and development policies; it will continue to do so. The EU's Economic Partnership Agreements with African, Caribbean and Pacific countries and regions are a good example of EU agreements that support both regional integration and connections with the wider world. Wherever possible, the EU also promotes a regional approach in other parts of the world, for instance in Latin America through free trade agreements with Central America and with Colombia-Peru. Regional integration also benefits from Aid for Trade, with the EU working actively with regional organizations to support their agendas. In fact, under the Multiannual Financial Framework for 2014-2020, most of the EU’s trade-related assistance will be channelled through regional programmes, whether in neighbouring countries, Africa, Asia or Latin America.

While the bulk of its Aid for Trade goes directly to developing countries and regions, the EU also collaborates with prominent international bodies like WTO, OECD and ITC, with which the EU finances projects. Though these actions are financially more limited, they are highly complementary. As well as supporting work on the conceptual framework of Aid for Trade, they focus on innovative or pilot projects, or on specialized activities like training and capacity building. In this respect, I wish to pay tribute to ITC for the excellent work the organization is doing for the European Commission, for example on maintaining a market access database for developing countries, identifying sustainability schemes, and their innovative work supporting small traders in developing countries.

As the Ninth WTO Ministerial Conference in Bali in December approaches, it is essential to maintain the momentum on making trade work for growth and development. A successful and ambitious outcome of the Ministerial Conference centred on trade facilitation is crucial in this regard. It would provide direct economic benefits for all WTO members, particularly developing countries, and would set the stage for further negotiations under the Doha Development Agenda.