EU-LDC Network conference 2002
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Improving Global Governance for Development: Issues
and Instruments - 7-10 December, Chiang Mai
Session 1.2 - Global governance implications
of WTO rules - Summary
This session looked at the effects of global governance in the
field of trade, or more precisely at the effects of WTO rules on
small and medium enterprises (SMEs) in developing countries. The
first speaker analysed the effects of WTO rules on the Indian textile
sector. This sector is very important in India in terms of production,
employment, and foreign exchange. The US and the EU are the two
most important importers of textiles and clothing, but there is
still a high degree of protection in these countries. The study
presented by the speaker focused both on the demand side in these
two markets for Indian textile and clothing products and on the
supply side factors of India’s competitive performance. Figures
in this study show that countries that have gained a bigger market
share are those countries that are integrated to the EU or US through
preferential arrangements. The global market place is changing in
the sense that alternative ways of protection are increasing, e.g.
in the form of anti-dumping duties, or labour and environmental
standards. The speaker noted therefore that it is difficult to predict
what will happen after 2004 when trade in textiles and clothing
will start falling under normal WTO rules; one cannot be sure that
liberalisation will really be put into practice. On the supply side,
the speaker pointed to the fact that the apparel sector in India
is highly fragmented in India, which leads to relatively high production
costs. Better supply chain management is essential to improve competitiveness.
There are also some shortcomings on the organisational side in the
sector, mostly because of the general small scale of the companies.
In addition, the levels of investment in the Indian apparel sector
are relatively low, which affects productivity and competitiveness.
Other factors that negatively affect the competitiveness of the
Indian T&C industry include a number of government policies,
shortcomings in infrastructure, and a number of non-price factors
on which India scores relatively low, for example regarding lead
times, communication and trust. Therefore the speaker concluded
that, while there are a number of important barriers to trade internationally
which need careful attention, most of the impediments to India’s
export competitiveness in the T&C sector lie at home.
The second speaker focused on Egyptian SMEs in the manufacturing
sector in the context of liberalisation. In the Egyptian manufacturing
sector, 81 percent of the workers work in SMEs, and more than 99
percent of all companies in this sector can be classified as SMEs.
Over the past 15 years a noticeable shift towards production in
large firms took place, a movement which was associated with a higher
degree of capital intensity. One of the main problems confronting
SMEs is the lack of finance for start-up and working capital. The
main source of finance for these companies is now private savings,
family and friends, and other informal lending sources. The banking
sector is reluctant to lend to small enterprises because of the
high associated risks and the relatively high costs of keeping accounts.
SMEs in Egypt are also characterised by a high degree of informality,
mainly as a result of institutional factors. Hernando de Soto has
once calculated that 159 steps are needed to get from the informal
to the formal sector, which is not very encouraging.
SMEs are relatively important in the textile and clothing industry,
in terms of number of companies and employment, although their share
in exports is relatively low. The sector has in the past been protected
by internal laws and external agreements (e.g. the Multi Fibre Agreement),
and as a result product quality and productivity are relatively
low. Trade agreements like the WTO, the Arab Trade Agreements, COMESA
and the European Partnership Agreements could help in opening up
new markets. So far, companies do not seem to have benefited from
these agreements however. They face increased competition from imports
and have not been able to expand exports. As a result, a large segment
of SMEs may have to close down, which will have repercussions for
production, employment and the trade balance. The speaker concluded
that corrective action is needed for restructuring, mainly through
the provision of training and technical assistance and through improving
access to export opportunities.
The first discussant noted that, when looking at improving or designing
WTO rules, the basic question should be how these trade rules can
promote development. The discussant felt that market access gets
too much attention in the WTO, although peak tariffs and tariff
escalation can sometimes be a problem. Developing domestic capacity
to reap the benefits is important for countries. On the Agreement
on Textiles and Clothing (ATC), he noted that there are problems
of under-utilisation and rent-seeking. Non-tariff barriers may be
more important than tariffs however.
The second discussant noted that the problems facing SMEs in Egypt
are prevalent in many developing countries. In the APEC region there
was also a high degree of protection, and with liberalisation competition
increased. Consumers will benefit from this however.
In the discussion it was noted several times that market access
will remain an important issue. In the ATC for example, quotas will
disappear, but tariffs remain. In addition, the use of non-tariff
barriers is increasing. The impact of regional agreements is also
very important as the number and size of these agreements is increasing,
and rules of origin limit competition from outside the region. It
is important that these issues are dealt with within the WTO. Specific
attention was also drawn to China’s accession to the WTO. According
to one participant, in the textile sector most countries will loose
from this accession. Only India and maybe Vietnam may be able to
pick-up. Restructuring will therefore be needed, and this requires
capacity building in developing countries.
Session 1.2 - Speakers
Chair: Benu Schneider
Speakers: Verma Samar (ICRIER), Alia El Mahdi (Cairo
University)
Discussants: Zdenek Drabek (WTO), Suthipand Chirathivat
(Chulalongkorn University)
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