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OPENING STATEMENT
 BY
MR. KIM HAK-SU
EXECUTIVE SECRETARY
UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA
AND THE PACIFIC

DELIVERED BY
MS. KEIKO OKAIDO
DEPUTY EXECUTIVE SECRETARY AND
OFFICER-IN-CHARGE, A.I., OF THE SECRETARIAT, UNESCAP

Distinguished experts, ladies and gentlemen,

It is my great pleasure to welcome you today to this Expert Group Meeting on the Role of Trade and Investment Policies in the Implementation of the Monterrey Consensus.

Linkages between trade, finance and development are crucial for developing countries. The Monterrey Consensus therefore identifies a set of actions that will ensure financial support for sustained growth in developing countries. The Consensus, however, provides no blueprint. It is merely a point of departure for a process that needs to evolve at the national, regional and international levels, in consonance with the changes taking place in the global economy. Our task today is to gain an improved understanding of these interlinkages and concretise the follow-up that is required at the regional level, in the area of trade and investment.

While we have a good understanding of the role that enhanced market access, capital, aid and debt relief play in mobilizing resources for development, we know less about their dynamic interaction. How can virtuous effects between export growth, international capital flows and domestic capital formation be established and sustained?  Alas, what we know all too well, is what happens when a vicious spiral of destabilization between these linkages sets in. The disenchanted memories of the 1997 financial crisis have yet to recede and the possible recurrence of such a crisis still haunts us. 

In accomplishing these tasks I wish to share some thoughts with you.

First, economic growth is fundamental. I emphasize this aspect. The international debate on poverty reduction is replete with policy prescriptions seeking to achieve equitable growth. This is laudable, but let us at the same time recognize that there is simply no better means for reducing poverty than rapid economic growth. Of course, it is an insufficient condition for poverty reduction, but no country has made inroads into poverty reduction without first achieving rapid economic growth.

Second, trade has a special role to play in this respect. The evidence from the ESCAP region shows that more open economies, on average, grow faster. More open economies also appear, on average, to have experienced reductions in poverty level, although here the evidence is more ambiguous. In some instances, poverty has worsened. Once again, trade is an insufficient condition for poverty reduction, but no country has made inroads into poverty reduction without trade.

And yet, the global trading system, despite more than 50 years of trade liberalization, is replete with trade protectionism. Furthermore, these trade barriers fall disproportionately on economic activities where the poor are most involved.  Delivering on the promises of the Doha Declaration in time and at the right level of ambition is thus a crucial piece of the puzzle.

The development dimension and the success or failure of the Doha Round has hinged around the issue of agricultural subsidies to a great extent – and rightly so, because the Uruguay Round Agreement on Agriculture did not bring about a systematic decrease in agricultural subsidies. In fact, in certain instances subsidies actually increased.  Subsidies create unfair trade conditions by suppressing the world prices for agricultural products thereby decreasing export earnings.    Subsidies are thus a major distortion in financing for development. More insidiously, they work at cross-purposes with ODA, another major component of external financing for development.  The coexistence of rising subsidies and declining ODA levels has for too long been a blatant example of incoherence in the international economic system: the right hand taking away from the left.

It was thus with a collective sigh of relief that we witnessed WTO members adopt the 31st July Decision, which among other things, sets out the roadmap for the elimination of export subsidies and the phase-out of domestic subsidies in agriculture. The package agreement however lacks in details – and in trade negotiations the devil is in the details. The French Minister of Agriculture, for example, is on record as having stated that it will be 2016 before any major effects are seen. It appears that we are in for the longhaul. Nevertheless, notwithstanding these sobering realities, the agreement is to date the most incisive multilaterally negotiated document on subsidy reform, and offers the best hope to see legally binding commitments that will rectify one of the major global distortions in financing for development.

Third, improved market access is but one side of the coin. Ultimately, welfare gains from trade liberalization will depend on a country's ability to make effective use of such access by supplying the markets. Many developing countries of this region still lack the production capacity to meet global market requirements in a cost competitive manner. These countries face increasing marginalization exacerbated by their inability to attract private capital flows.  For them ODA has a crucial role to play.  The resource gap however remains huge. More and better aid for trade, particularly in infrastructure projects, is required if these countries are to jumpstart their production capacities and trade flows.  

Fourth, in more dynamic trading countries, private capital flows, notably foreign direct investments, can to a certain extent mitigate this resource gap. The Monterrey Consensus recognizes this as a vital component, that together with trade, now account for much larger sources of financing for development than ODA.  Importantly, FDI embodies upgraded technology and human capital transfers that eliminate supply side deficiencies, which combined with more effective market access and ODA, could certainly lay the foundations for a virtuous circle of development.

Fifth, I wish to highlight the special problems that LDCs face, because a resolution of these issues may necessitate tailored responses.  An issue that affects the lives of millions of people, is the unresolved problem of declining commodity prices and declining export earnings this gives rise to. Furthermore, when this is combined with lower customs duties, LDCs face rapid declines in government revenue, which cannot easily be supplemented by other fiscal means, given their narrow tax base. Although LDCs in the ESCAP region have on average been more successful than other LDCs in reducing their reliance on single raw commodities, many are still highly dependent on commodities.  Should additional financing mechanisms be set up to assist LDCs in overcoming these problems? What are the prospects for such facilities to evolve in the ESCAP region? Should a special facility for LDCs be set up, particularly for those LDCs that will be affected by the MFA phase-out?  Should a South-South solidarity evolve, with resource-rich countries like China leading the way?  I leave these questions with you.

I look forward to hearing the outcome of your deliberations.  At the Subcommittee on International Trade and Investment tomorrow, an important opportunity will be presented, to bring your ideas to the attention of senior-level decision-makers of the region.  I urge you to think boldly and to come up with concrete recommendations.

Let me conclude with this message.  The Doha round can bring huge benefits - well beyond what can be delivered in any other area of international economic activity - if governments put their minds to it. An opportunity for leadership to emerge from middle income developing countries exists, and it is the great trading nations of the ESCAP region that should lead the way, and stand firm on the fact that an enhanced multilateral partnership between developed and developing countries on trade, aid, capital and debt is a necessity not an option. 

Thank you.