Statement at the CII Partnership Summit 2014
Speech by Ms. Arancha González, Executive Director, International Trade Centre
Delivered on 28 January 2014 at the CII Partnership Summit, India
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Director-General of the WTO
Distinguished Members of the Panel
Ladies and Gentlemen
Thank you to the Government of India and the Government of Karnataka State for the warm welcome and hospitality.
Thank you for inviting the International Trade Centre to address this Partnership Summit. The CII is indeed an organisation premised on partnership and one which the ITC has had many years of collaboration. As part of the United Nations our goals are very similar: to empower and build the capacity of small and medium enterprises to use trade as a platform for growth and ultimately for development. We assist these companies to turn global and regional trade policy into business opportunities.
So what do SMEs require from the global trading system? Before I answer this question let me raise three contextual issues.
One, SMEs are the growth vector of the global economy. SMEs drive more than 80% of job creation in low-income countries, and will be playing an important role in creating economic opportunities for the almost 500 million people expected to enter the global labour market by 2030.
The situation in India is no different where the more than 1.3 million SMEs generate over 60% of employment and contribute to almost half of India's total exports. In India, SMEs are at the very core of productivity and employment creation and even more importantly- are at the heart of providing opportunity to lift people, especially women and the youth, out of poverty. This is especially critical for India where 65% of the population are under the age of 35.
Second, the topography of the way that we trade is continuing to change. South-South trade is increasing annually and in ten years could be 30 percent of the total global trade transactions. And we are all familiar with the current reality of trade in tasks. Goods and services are no longer just produced in country A or country B and traded with country C. Goods and services are produced, distributed and traded in multiple countries by multiple actors crossing borders multiple times. This is what we call value chains. The opportunities for SMEs to enter and move up these value chains exist if the right mix of governmental policy, global regulation, investment and capacity building is there.
One other feature of the new way that we trade is the blurring of the frontiers between goods and services. The movement of goods across borders relies on logistics and transportation services. The production and trade of agri-food depends on distribution services. The buying and selling of commodities increasingly relies on mobile and ICT services. What has historically been seen as two separate, sometimes interweaving tracks, is now almost indistinguishable in many sectors.
A final contextual issue is that of competitiveness. This is at the core of ITC's mandate- helping SMEs and hence their developing country 'hosts' to be more competitive. This increasingly means helping these companies to recognise, address and meet the growing web of non-tariff measures and regulatory barriers to trade. The role of tariffs as a means of legitimate (or not) protection is decreasing. It is the framework of national, regional and global regulations which is providing challenges to SMEs in developing countries to be able to internationalise.
A recent survey which ITC conducted of over 7000 SMEs provided some interesting information. Lack of access to trade finance and problems related to the business environment were cited by more than a third of respondents as posing major export constraints. What is interesting is that two thirds of respondents listed tariffs as a minor or no constraint while NTMs were seen as a growing concern with 70% of exporters and importers in LDCs reporting that they faced burdensome NTMs, compared to an overall average of 54% from developing countries. Cumbersome administrative procedures were seen as a major burden for exporters as these had a greater impact on SMEs given lack of resources to deal with obstacles such as complex certification-linked processes and sudden changes in regulations and permit delays.
Based on these observations allow me to suggest three areas which trade policies will need to address in the future to support the internationalisation of SMEs and through that to create jobs.
First, focus on opening trade in services. In India services makes up 65% of the GDP. In many developing countries it is even greater. In Fiji it is 70%; in Barbados it is almost 85%; in Mauritius it is almost 75%. In Africa the share of services is also increasing. In Tanzania, Zambia and Rwanda it is around 50%, and in Zimbabwe it is around 55%. This calls for a cohesive approach to the trade in goods and services and for attention to be given to them in tandem. Boosting manufacturing requires boosting services. Boosting services trade will help enhance manufacturing,
Second, focus on non-tariff barriers. Although there are existing tariff negotiations that still remain to be settled in the WTO- some of them still of great importance to some Members- it is the non-tariff measures which are paramount on the mind of your SMEs. Safety standards, prudential rules, sanitary measures, security, technical standards. These are the obstacles to trade of tomorrow. And it is here that trade negotiations need to ensure that multiple bilateral and regional trade agreements being negotiated do not scatter the level playing field. This is an area for greater attention for the global trading system. Add to this the continued concern regarding difficulty in accessing appropriate finance to trade and we are seeing a picture of trade-related concerns which are more operational and more in concert with the actual needs of traders.
Third, implement the trade facilitation deal reached at the WTO Bali Ministerial. This has the potential to reduce the cost of doing trade for SMEs. Let me mention two other areas of importance to SMEs which although not part of trade policies are essential to the internationalisation of SMEs.
One is skills, education, vocational training which will help SMEs trade. Second is trade finance- available but also affordable trade finance. I know this is front and centre of the Indian Ex-Im Bank. I hope their experience and expertise can be put to use of other countries, in particular for Least Developed countries (LDCs).
The world of trade has changed since the Doha development agenda was launched in 2001. Now, more than ever before, SMEs dominate the trading landscape and are more aware of the connection between global policy and domestic reality than in any previous generation. Global policy must support the development, diversification and growth aspirations of these SMEs. It is only through measuring the impact of global rules on the SMEs that we will be able to gauge their effectiveness and success.