Statement at the European Parliament Committee on International Trade
Speech by Ms. Arancha González, Executive Director, International Trade Centre
Delivered on 19 March 2014 at the European Parliament Committee on International Trade in Brussels, Belgium
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Thank you for the invitation to address you this morning. I am here representing the International Trade Centre (ITC), an organisation which I like to describe as “the plumbers, carpenters and designers of the trading system”.
The trading system needs architects- the WTO- and it needs engineers- UNCTAD; but it also needs the ITC, with its focus on the small and medium enterprises (SMEs) in developing countries, to ensure that the nuts and bolts are sufficiently aligned and in good working order. We are there to ensure the opportunities generated by the trade agreements that you green light, translate into realities on the ground.
This year the ITC celebrates its 50 anniversary and our client base is growing and becoming increasingly sophisticated in how they see the international trading ecosystem working for them.
Many have termed 2014 a potential watershed year. We have the Trade Facilitation Agreement which was adopted at Bali in late 2013 laying the groundwork for a revitalised multilateral trade agenda. We see the debate in New York around the MDGs and the SDGs in building the so- called ‘Post 2015-Agenda” picking up steam. This is all against a continually changing landscape of international trade.
The rise of the value chain is well recognised. It is a pattern of production which is not new- but whose depth and breadth keeps growing. The rapid innovations in the way that we produce, transport, and sell goods and services are constantly changing the very DNA of business. Technological improvements bring incredible opportunities.
The stage is set. The only question that remains is ‘what next?’
Here I look to the world’s most concentrated, booming and innovative engine for world trade and growth – Small and Medium Sized Enterprises. SMEs dominate the world business stage on account of their vast numbers. More than 95% of enterprises in the world are SMEs, representing around 60% of private sector jobs. SMEs are key drivers for economic growth, innovation, employment and social integration.
Ensuring that we create the right environment to allow SMEs to be engaged in trade is an important part of a more resilient global economy. And to fully unlock their potential within the multilateral trading system, there is still some work to be done to help address market failures which prevent SMEs from becoming the engines of growth that the international economy needs.
ITC is there to address such market failures and to help SMEs internationalise.
During the 50 years of our trade and productive capacity building, the types and number of barriers to trade have evolved. Multilateral, regional and unilateral trade opening has helped to substantially reduce tariff rates. According to a recent ITC survey of SMEs in developing countries, close to 70% of respondents listed tariffs as a minor or no constraint to export growth.
However, we have witnessed an exponential increase in the relative importance of non-tariff measures as the key obstacles to trade in the XXI century. Priority number one to unlock the potential of SMEs is to address non-tariff barriers to trade.
This is where the WTO deal on trade facilitation is good news: the agreement tackles non tariffs obstacles to trade – those related to border procedures – and for the first time it innovates in its approach towards developing and least developed countries. The old “opting out” approach is replaced by an intelligent blend of commitments accompanied by support for their implementation. This, in my view, is the way forward in other areas of the global trade agenda: from notional to real market access.
The ITC – in partnership with UNCTAD and other international and private sector organisations – is already helping developing countries implement the Trade facilitation deal. And as we do that, we must remain vigilant that support for the implementation of the deal will be available. I count on the European Parliament to ensure the EU delivers on its commitment for support.
But I would suggest that we think trade facilitation beyond the scope of the WTO agreement to encompass a broader set of actions to reduce the entire range of burdens and costs to international trade. In this we need to include issues such as access to finance, entrepreneurship and skills development, innovation and technology, compliance with private standards and other non-tariff measures.
My second suggestion would be to ensure that global trade agreements, as well as those concluded by the EU with developing countries and in particular least developed ones, be accompanied by a strong set of measures to improve SME competitiveness of your developing partners.
It is important that greater attention be paid by development assistance to strengthening the private sector in developing countries. And this is why we welcome the recent initiative by the European Commission to prepare a Communication on the role of the private sector in development.
It is about strengthening the trade support institutions; it is about fostering trade competitiveness; it is about building spaces for private-public dialogues, it is about fostering vocational training and capacity building; it is about building market linkages through business-to-business platforms. In a nutshell, it is about recognising that the private sector and in particular SMEs have a key role to play in development and elimination of poverty provided they are properly tooled. You are well placed to ensure the EU leads the way.
Let me, as a third element, suggest that we pay closer attention to helping women-owned SMEs to internationalize. In developing countries there are 8-10 million women-owned small and medium-sized enterprises, representing close to 40% of total SMEs. Despite their growing economic force, women entrepreneurs face specific challenges in their activities.
Women’s economic empowerment must be an integral part of our agenda not only because it generates employment but because women reinvest up to 90% of their earnings in their families and communities and are, therefore, a powerful tool linking trade to development.
Helping foster women entrepreneurship – through capacity building, through facilitating setting up SMEs by women, through – why not? - setting aside a part of government procurement for the benefit of women owned enterprises, through linking women owned SMEs to regional and global markets – needs to remain central to discussions on SME internationalization. This is at the core of ITC’s Women and Trade Programme.
Let me in closing also mention investment, including through non-bank supply chain financing, angel investors and venture capitalists, which I see as critical for SMEs to grow. Encouraging impact investors to explore untapped opportunities in untapped markets is another example of how development partners can help facilitate trade in the wider sense.
We know there are huge benefits to international activity by SMEs. European SMEs with FDI demonstrated 16% employment growth in 2007-8, compared with 4% from the rest. SMEs involved in trade showed 10% employment growth, compared with 3% from the rest. So, when SMEs trade, their contribution to their home economies increases. This works both ways for SMEs based in developed and developing countries alike. However, for this to happen, substantial barriers need to be overcome. This is where development partners can play a role, and where impact investment can play a role.
This year alone, impact investors will channel billions of dollars to fund impactful innovations in a wide range of sectors, institutions and individual enterprises. Capital in the impact investing market could reach $400 billion to $1 trillion by 2020. The EU is in a good position to engage mainstream investors from European industries, which is a very dynamic and interesting supply chain to SMEs in fast growing developing economies, in particular in Africa.
Financing EU SME engagement in developing countries can yield promising innovation; niche products; and new jobs for SMEs in Europe. When EU SMEs do business in developing countries, this gives impetus for increasing local demand for services, which developing country SMEs in fast growing markets can provide.
There is much to do and much that can be done. I trust that my few words have provided additional food for thought to your on-going discussions. I count on the support of the European Parliament to ensure Aid for Trade remains high on the development agenda.