Good morning. Thank you for welcoming me to the WTO’s Fifth Global Review of Aid for Trade.
Promoting freer and more inclusive trade is a critical part of the World Bank Group’s plan to end extreme poverty by 2030. I say this knowing that, for some, the argument that trade helps the poor has been controversial. Yet our best evidence suggests that, when countries are effectively integrated into regional and global markets, their poorest citizens can reap substantial benefits. Our plan to end poverty must include two objectives: Expanding opportunities for low- and middle-income countries to participate in trade; and reducing what we call “trade costs” – obstacles that prevent the poor and the vulnerable from participating in trade and, as a result, constrain their opportunities to reach their full potential.
For years, many have debated whether trade helps or harms the poor. The World Bank and I were on opposite sides of the debate 20 years ago. International financial institutions rightly saw the growth potential from trade to be a multiplier for growth and development. However, they and others did not focus sufficiently on identifying situations where specific groups of poor people were unable to reap the benefits of trade or were adversely affected by increased global competition.
As a result, some thought that the World Bank, along with the WTO and others advocating for trade liberalization, were pushing an agenda without taking into account the costs that it imposed on the poor and the vulnerable. Protests at the Seattle WTO Ministerial Conference in 1999 focused the global spotlight on this strongly held view.
We’ve learned some important lessons since then. For example, we know that trade benefits developing countries when we build ways for them to connect their poorest citizens to global markets. We also know that providing these people access to the opportunities of trade has a dramatic impact on reducing extreme poverty.
Just look at the evidence. Since 2000, developing countries’ share of world trade has grown from 33 to 48 percent. This helped stimulate growth in low- and middle-income counties, and accelerated poverty reduction. China has tripled its share of world trade since joining the WTO in 2001, helping cut its extreme poverty rate from 36 percent at the end of the 1990s to 6 percent in 2011. Overall, developing countries’ gains from trade contributed to reducing by half the proportion of the global population living in extreme poverty between 1990 and 2010, achieving this First Millennium Development goal five years ahead of schedule.
Trade’s contribution to poverty reduction on this scale did not occur by accident – governments took specific, cross-sector steps to integrate poor communities into global markets through domestic reforms and international agreements.
In Vietnam, the Doi Moi economic “renovation” in the late 1980s set the stage for increases in farm productivity that helped Vietnam become a top exporter of rice, coffee and tea over the next three decades. Land reform gave farmers increased rights over use of their land and, coupled with better connections to markets, improved productivity, raised incomes and reduced their vulnerability. After a long process, Vietnam acceded to the WTO in early 2007, enhancing its producers’ access to global markets.
The impact has been remarkable: Since the early 1990s, Vietnam has cut its rate of extreme poverty from over 60 percent to less than 3 percent today. The combination of reduced trade barriers and domestic economic reform promoting private sector development produced this transformation.
There are, in fact, many examples of targeted reforms and openness to trade that have helped the poor. In Cambodia, the combination of reforms and openness enabled poor rural farmers to sell rice to international markets and created new jobs in urban areas through the garment sector, where over 80 percent of the workers are women. Between 2007 and 2011, extreme poverty in Cambodia fell from 30.8 percent to 10.1 percent.
In Ethiopia, exports of cut flowers from one firm to the European Union helped open the door to an export industry that now employs 50,000 workers. It has also generated more secure wage employment and a pathway out of poverty. In Lesotho, employment in the export-oriented garment sector has created jobs for women, many of whom have little opportunity for formal employment in other sectors because of low levels of skill.
Many of these countries still face challenges in ending extreme poverty. However, evidence shows that, when coupled with domestic reforms that empower the poor, increased trade has provided a powerful engine for poverty reduction.
Indeed, trade that benefits the poor is one reason we’ve made enormous progress over the last 25 years in our mission to end extreme poverty. Overall, there are now about 1 billion fewer people living on less than a $1.25 dollar a day than in 1990. However, nearly 1 billion people still survive below this line. Ending extreme poverty by 2030 is an ambitious, but achievable goal if we promote inclusive growth – growth in which the poor and the vulnerable share equitably.
The topic of this year’s Global Review is therefore timely. Reducing trade costs – whether they result from weak infrastructure, inefficiencies and corruption at border crossings, or gender inequalities – can boost demand, increase incomes and create jobs. As a result, lower trade costs can promote inclusive growth.
Reducing trade costs will also be critical to financing the Sustainable Development Goals. By increasing growth prospects, it makes developing countries more attractive destinations for investment. This will help accomplish one of the objectives of July’s Financing for Development conference in Ethiopia: Unlocking private sector investment to move from billions of dollars in overseas development assistance to trillions of dollars in development spending.
Research shows that the poorer specific countries are, the higher their trade costs. Exporters in low-income countries face trade costs in manufacturing that are, on average, almost three times higher than in advanced economies. And these costs are even higher in the agriculture sector. Given that 70 percent of the world’s extreme poor live in rural areas, tilling small farms or working in informal jobs, these costs create substantial obstacles to trade benefitting the vulnerable and reducing extreme poverty.
Evidence suggests that we can make trade work for the poor and the vulnerable if we lower barriers to trade between countries and reduce trade costs within counties through cross-sector approaches. At the global level, we fully support the WTO’s effort to energise multilateral trade negotiations and make progress at this year’s Ministerial Conference in Nairobi. And we urge parties to complete ratification and implementation of the Trade Facilitation Agreement.
Within countries, rural poverty, gender discrimination, fragility and conflict, and informality pose specific problems that prevent the poor from reaping the benefits of trade. For example, without better roads and more competitive transportation services, poverty prevents farmers from getting their goods to market. When coupled with trade policies that facilitate farmers’ access to modern seeds and fertilizers, domestic reforms that lower transport costs can significantly increase farmers’ incomes and the agricultural sector’s returns from trade.
The World Bank Group is working with governments on cross-sector approaches to tackle these challenges in many places, including the Great Lakes Region of Africa, which contains some of the highest concentrations of extreme poverty in the world. In the Democratic Republic of the Congo, 88 percent of the population lives on less than $1.25 dollar a day. The country is also affected by fragility and conflict, has a large informal economy, and 85 percent of small-scale entrepreneurs crossing borders to trade are women.
Our Great Lakes Trade Facilitation project is helping to lower trade costs for its citizens and those of Burundi, Rwanda, Tanzania, Uganda and Zambia. The $130 million dollar initiative will upgrade border infrastructure, simplify border procedures, and improve border agency capacity. It also focuses on facilitating the participation of small-scale businesses in cross-border trade, which will help women entrepreneurs.
There is, of course, much more to be done. At the World Bank Group, we’ve restructured our operations so that we’re better able to help. Our Trade and Competitiveness Global Practice, under the direction of Anabel Gonzalez, is about to complete its first year of activity. Through initiatives like the Great Lakes project, it is working with governments to apply our best global knowledge to ensure that trade contributes to poverty reduction. Anabel and her group are also assisting countries develop policies to maximize their gains from freer trade.
In addition, the Trade and Competitiveness team is spearheading important partnerships such as our work with the WTO. Only moments ago, Roberto and I launched a report that sets out an agenda for greater action to lower trade costs and maximize the gains of trade for the poorest. Our organizations will also start an initiative to develop indicators to track trade costs that most affect the poor globally. Ultimately, this will us help design better trade projects and provide for more effective monitoring of progress in lowering trade costs for the poor.
When we work together, the WTO, the World Bank Group and other partners can have a major impact on ending extreme poverty. We must continue to work with all of you to put our global knowledge at your service so that trade facilitates inclusive growth. If we succeed together, we will become the first generation to end extreme poverty in the world. It will be one of humankind’s greatest achievements. Thank you.