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Emerging Potentials of International Trade for South Asian LDCs

At a talk programme on Emerging Potentials of International Trade for South Asian LDCs organized by SAWTEE on 14 February 2011 in Kathmandu, experts highlighted issues pertinent to emerging potentials of international trade for South Asian least-developed countries (LDCs) and the supply-side constraints faced by them in boosting their export capacity and exports. They argued that the international community should not only provide market access, but also help LDCs in enhancing their trade capacity. Aid for Trade (AFT) could play an important role on this regard.
The panelists included Dr Harsha Vardhana Singh, Deputy Director General, World Trade Organization (WTO); Dr Yubaraj Khatiwada, Governor, Nepal Rastra Bank; and Ratnakar Adhikari, General Secretary, SAWTEE. Dr Posh Raj Pandey, Executive Chairman, SAWTEE, chaired the event.

Supply-side constraints

  • Dr Singh remarked that Nepal and other LDCs suffer from supply-side constraints despite their dissimilarity in economic structure, population and resource endowment.
  • “South Asian LDCs still pay very high tariff to access major markets, and duty-free and quota-free initiatives have yet to prove fruitful due to hurdles imposed by non-tariff barriers,” said Mr Adhikari. On top of this, supply-side constraints are further dampening their export potentials, he added.
  • The growth rate of South Asian LDCs is expected to be higher than that of the world average, a strength that needs to be tapped, Dr Singh argued. Due to good fiscal and monetary policies, large export potentials exist for Nepal but supply-side constraints have to be adequately addressed, he added.
  • Dr Pandey argued that exports growth of South Asian LDCs with respect to other LDCs is low mainly due to structural problems, of which supply-side constraints are one of the strongest. He further added that LDCs need to start exporting sophisticated goods as the existing range of export items are low tech with weak spillovers.­­­

Changing global market

South Asian LDCs are predominantly exporters of manufactured items and services and are not as dependent as Sub-Saharan LDCs on commodity exports. However, their levels of export concentration are fairly high. They should focus on both product as well as market diversification.

  • The two South Asia LDCs which are also members of the WTO—Bangladesh and Nepal—have to find new products as global markets and production chains are changing, especially after the end of Agreement of Textiles and Clothing (ATC) and the recent global financial and economic crisis, said Dr Singh.
  • Dr Khatiwada argued that it is time to look at markets in the East and not be obsessed with the Western markets. “It is time to concentrate more on services exports rather than merchandise exports as Nepal is losing competitiveness in the latter and hopes of recovery in the short term are dim,” he remarked. However, Dr Khatiwada also pointed out that Nepal possesses great potential in commercial agriculture and it should focus on the production and exports of such goods that can utilize domestic raw materials.
  • Even when a generous duty-free and quota-free market access is provided, South Asian LDCs are unable to utilize such preferences because of stringent rules of origin (ROO) requirements, low level of their industrial development in general and limited backward linkages in particular, argued Mr Adhikari. Since LDCs are compelled to source their raw materials from other countries, their chances of fulfilling the rigid ROO requirement are extremely slim.

Aid for Trade

There is a gap between commitment and disbursement of AFT. Furthermore, donors’ foreign policy objectives appear to be strongly determining the allocation of AFT funding among recipient countries. For instance, according to the Organisation for Economic Co-operation and Development (OECD), Afghanistan and Iraq received US$4.5 billion in 2008, representing 12 percent of total AFT commitment. Also, advanced developing and fairly resourceful countries as well as members of the G20 such as China, India, Turkey and Indonesia received US$7.3 billion, which represented 20 percent of the commitment made to developing countries for 2008.

  • Based on preliminary estimates, Mr Adhikari doubted if there is additionality over regular Official Development Assistance (ODA) at least in the case of Nepal. A six-country case study currently being conducted by SAWTEE together with the Geneva-based International Centre for Trade and Sustainable Development (ICTSD) is investigating, among others, whether or not these countries have received AFT over and above their regular ODA.
  •  Dr Singh added that if additionality in AFT is not taking place, then it needs to be highlighted and properly addressed.

About 80 stakeholders, including policymakers, academics, economists, private sector representatives, donor community representatives and media persons, participated in the programme.