How do we continue to open trade and eliminate trade barriers, while ensuring that those producing our products are integrated into the system and treated fairly?
The World Trade Organization (WTO) Public Forum in Geneva, titled “Why Trade Matters to Everyone,” examined this question, with high-level officials and in-the-weeds trade wonks providing ideas on how to open trade while promoting equality in global value chains, especially in Africa and the rest of the developing world.
Roberto Azevêdo, Director General of the WTO, kicked off the opening plenary session by noting that trade is changing, and fast. Today, the biggest supporters of trade are located in developing countries, which are increasingly emphasizing trade in their development plans.
Ban Ki-moon, Secretary General of the United Nations, discussed the need for open trade, though he cautioned that we must ensure that trade is fair and benefits all. Using Korea as an example, he said that trade promotes growth—and in fact, where trade is absent, economies cannot grow. “An ounce of trade equals a pound of aid,” he said.
However, he added, it’s important that we promote trade that benefits as many people as possible, and especially work to integrate Africa and other Least-Developed Countries (LDCs) through open, non-discriminatory trade. The UN’s priorities include opening trade and providing Duty-Free-Quota-Free (DFQF) access for LDCs to enter new markets, as well as addressing protectionism and red tape while ensuring that developing countries have the infrastructure to support robust trade. The Doha Round is the best route to fair, better, open trade, he said, and if managed well, then trade can be a key driver of development.
The opening session continued with an agreeable debate about how trade and development go hand-in-hand. Guy Ryder, Director-General of the International Labour Organization (ILO), said it’s important to remember that people are behind our products. We know the aggregate effects of trade liberalization are more jobs and more economic opportunities, but there are still winners and losers in the system. While trade liberalization is vital to development, it needs to have other interventions—and the Rana Plaza tragedy in Bangladesh brought this issue to light. While trade is critical to bring people out of poverty, we still need to look at the conditions of global value chains and develop rules.
In the course of the discussion, Ryder added that we want trade to expand, but we must take the holistic view that trade is good because of what it provides to people. The other speakers—including Amanda Long of Consumers International and Robert Smith, Executive Editor of NPR’s Planet Money, who traced the value chain of a t-shirt—agreed.
The discussions that followed during the three-day forum attempted to put these pieces together and find ways to create open, equitable, and non-discriminatory trade.
Challenges & Solutions
There are many challenges to opening trade, especially with developing countries, ranging from trade policy challenges to the lack of infrastructure in the developing world to unsafe working conditions. The forum included many discussions on these challenges, as well as ideas for solutions.
Both the United States and European Union have worked to open trade with developing countries through various trade preference programs that provide DFQF market access. While the EU has many programs still in place, the United States’ Generalized System of Preferences (GSP) program expired in July 2013, and the African Growth & Opportunity Act (AGOA), which has been successful, is scheduled to expire in less than a year.
During a session titled “Africa’s Post 2015 Trade Futures,” Mwangi Kimenye of the Brookings Institution’s Africa Growth Initiative said there is discussion on whether to renew this landmark legislation, and if any changes should be made. The program was not intended to be renewed, he said, and though it’s grossly underutilized by non-oil importers, it has still led to growth and development.
He outlined several options, such as not renewing it and focusing on GSP, renewing it and expanding eligible products or countries, restructuring to resemble the EU’s Economic Partnership Agreements (EPAs) in the region, or waiting for the Transatlantic Trade & Investment Partnership (TTIP) to create integration. With all factors considered, however, he concluded that the program should be renewed, with Bangladesh and other poor countries included, because without renewal, we’ll see declines in trade and wages. And, he added, renewal needs to come quickly, or orders will stop.
The second day of the forum opened with another plenary session titled “What Trade Means for Africa.” Azevêdo noted that Africa has the most positive view of trade. The region’s impressive growth has been supported by trade in commodities, but there remains a huge gap in equality and economic growth, particularly in non-oil countries, as well as health and security issues. Still, by opening trade, expanding the WTO’s Aid for Trade, implementing the Trade Facilitation Agreement, and making progress on the Doha Round, he believes we can create open but equitable trade.
Axel Addy, Minister of Commerce and Industry for Liberia, discussed how trade could help his country continue to grow. Though Liberia is inexperienced in terms of infrastructure and security, the country does have a young, educated population, an entrepreneurial culture, and a resiliency that will enable them to overcome the Ebola epidemic and continue to move forward.
The speakers agreed the investment in infrastructure is key to expanding open, fair trade. Paul Brenton, Lead Economist for the World Bank Group’s Trade & Competitiveness Global Practice, explained that there is a lot of potential for African trade, especially regionally, but barriers remain. Those barriers include infrastructure like border operations and paved roads, which help connect the poor to global markets, as well as policies and procedures at the border and production capacity. But, we need to make sure these improvements still benefit the poorest, especially the hundreds of thousands of small traders, many of whom are women. Minister Addy agreed, noting that infrastructure in energy, transportation, and roads will help reduce the cost of doing business in Liberia. Frank Matsaert, CEO of TradeMark East Africa, which works to promote poverty reduction and economic growth in the region, and Issam Chleuh, Founder and CEO of Africa Impact Group, which leverages investment capital in Africa and helps companies enter African markets, both agreed on the need for infrastructure, as well as regional integration.
Another session focused specifically on working conditions in the Bangladesh garment sector, and provided ideas for solutions. Titled “Bangladesh Garment Factory Tragedy to Happy Worker: An Initiative for Balance of Benefits in Global Trade,” the session was led by the Institute of Developing Economies-Japan External Trade Organization (IDE-JETRO), which researches Japan’s trade with and investment in developing regions.
The session focused on a proposal by Dr. Abu Shonchoy, Research Fellow at IDE-JETRO. Originally from Bangladesh, Dr. Shonchoy researches development and labor economics as well as public finance in developing regions, focusing primarily on Bangladesh. His “Happy Workers Initiative” is still in development, but he hopes to gain support from all stakeholders to improve the working conditions in Bangladesh, which did not receive much global attention until the Rana Plaza tragedy.
Dr. Shonchoy explained how the rapid growth of factories in structurally unsound buildings, combined with the political power held by the Bangladesh Garment Manufactures & Exporters Association (BGMEA) and factory owners and the government’s poor capacity to enforce safety standards, led to poor conditions. Meanwhile, he said there has been a “race to the bottom” with pressure on factories to reduce costs rather than improve conditions.
After the tragedy, we witnessed a “blame game” among all stakeholders, he said–the government needs to be more proactive to ensure compliance, the BGMEA needs to take a leadership role on compliance, and global brands should improve their minimum safety compliance standards and work together to develop one standard, among the complaints. He noted that brands divided into two “rival” camps—the Alliance for Bangladesh Worker Safety in North America, and the Accord on Fire & Building Safety in Europe—but while they have had some achievements, he noted, there is a need for a consolidated effort and especially a solution for what to do when factories are closed after inspections.
He hopes his “Happy Worker Initiative” could bridge the gap between producers and the end consumers, who could drive the quest for better labor conditions. His initiative, which he says should be monitored by an independent third party, perhaps an established NGO, would take three steps:
- First, verify the working conditions in the factory with a third-party local inspector.
- Depending on the conditions in the factory, set a goal for the factory, whether it’s building safety, fire safety, or worker safety and well being.
- When the factory meets the goal, it will be able to use the “Happy Worker” sticker, which the consumer can scan with a smart-phone to verify that the garment was indeed made by safe and happy workers by giving them information about the factory, the third-party monitor, and the fact that the brand paid 10 cents extra to the initiative. Each sticker can only be used once, and after a garment is purchased, the code can never be used again to prevent corruption of the initiative.
The initiative would be funded by the 10-cent payments, which Dr. Shonchoy said should be funded by the brand and not added to the price of the garment. This money will be redistributed to the factories (50%) to make improvements; to a workers’ welfare trust (15%) to develop a hotline, insurance, and other programs; and to the monitoring authority (35%), which will focus on consumer education.
Other speakers addressed whether such a program could work, from the technical issues with a sticker to ensuring that the program is working. Masaki Wada, Executive Director of Energetic Green, who works with brands on sustainability initiatives, said that it’s a good idea but unlikely to be workable due to labeling and hang tag issues, though he could see small and medium-sized brands leading the effort. Mari Nakamura of IDE-JETRO concluded that consumers are ready for the program, though it’s important to note that the premise is that consumers will not pay more for their garments. Edgard Rodriguez of the International Development Research Centre in Canada applauded the private sector, and particularly Nike and Gap, for the work they’ve already done, but noted that for the program to work, we need more research into whether inspections are actually happening and go beyond inspections to provide an incentive for all stakeholders to collaborate.
While no brand or retailer sourcing in Bangladesh participated in the discussion, USFIA noted during the Q&A period that while the initiative is certainly interesting, there are some challenges as noted by Mr. Wada. In addition, it’s important to address the good work already being done by brands and retailers in the Alliance in particular, which has already achieved many of the initiative’s goals such as inspections of 100% of members’ factories, development of programs like a worker hotline, and payment of wages to displaced workers when factories are closed. There is considerable collaboration already occurring, and this initiative should seek to work with the Alliance and the Accord and other stakeholders to further enhance that collaboration rather than start a completely new initiative.
While many discussions focused on challenges and solutions, others focused on trade success stories in the developing world. “Global Value Chains: What Economic Footprint in Sourcing Countries?” sponsored by the Foreign Trade Association (FTA) in Brussels and EuroCommerce, focused on how global value chains lead to increased trade and economic development.
Global Value Chains Work
Nguyen Trung Thran, Vietnam’s Ambassador to the WTO and UN, explained how Vietnam is a global value chain success story. Vietnam is an essential player in global value chains, with primary exports including oil, coal, textiles, and shoes, and imports including machinery, fertilizer, and other materials for production. And foreign direct investment has played a crucial role in the development of Vietnam, which has socio-political stability, a dynamic economy, a young, pro-business population, and pro-growth and pro-integration leadership. To continue this success, the Trans-Pacific Partnership (TPP) is a priority, as is a free trade agreement with the EU. While challenges remain—infrastructure, bureaucracy and corruption, and a lack of educated and skilled workers among them—Vietnam has come a long way thanks to GVCs and the developed world’s investment in the country.
And Christian Henn, an economist at the WTO, explained why, noting that as countries move through GVCs, beginning with farming inputs to manufacturing textiles and apparel to manufacturing other products, poverty declines and development expands. There is a certain quality level required for global integration, and countries upgrade products or processes to get additional value add, which leads to investment from multinationals because they will get better and cheaper products, and the cycle continues, leading to greater development. The flipside is that trying to build an entire supply chain at home will make a country uncompetitive on the global scale. Martina Lodrant, who coordinates trade policy strategy at the European Commission, added that the fragmentation of GVCs actually provides better opportunities for developing countries to upgrade.
That’s not to say that GVCs don’t have challenges, too, as the Rana Plaza tragedy demonstrated. Joerg Hofsteter of the University of St. Gallen and the International Forum on Sustainable Value Chains said that 85 percent of problems in global value chains come from upstream suppliers that companies don’t know. To improve compliance across the chain, it’s important to identify everyone operating in the chain and set targets for improvement.
And as global value chains lead the developing world to greater economic integration, so, too, does technology. Moderated by Stuart Harbinson, “Innovate Africa: Perspectives from the Private Sector” focused on success stories of how businesses are getting into Africa and consequently paving the way for the increase in trade and economic welfare in the region. The session looked at several innovative success stories, including the cotton sector and agricultural biotechnology in Burkina Faso, and health care and wireless communications in Nigeria.
Dehu Dakuo, Director of Cotton Production for La Société Burkinabè des Fibres Textiles (SOFITEX), and Quattara Zanga Mamadou, General Secretary of the National Union of Cotton Producers and a cotton producer himself, explained how new biotechnology enabled them to increase yield and improve working conditions. Developed by Monsanto, a U.S.-based sustainable agricultural biotech company, genetically modified cotton seeds have led to decreases in insecticide and water use, and increases in productivity and worker health, with a drop in medical treatments for cotton farmers exposed to insecticide. As a result, they have seen greater productivity and yield, and happier workers who are better able to contribute to the global value chain.
Meanwhile, Agboponto Soglo Bienvenu, Senior Manager of Government Affairs for Qualcomm, a telecom company headquartered in San Diego, explained how mobile devices have changed health care in Nigeria. Of the 3 billion internet users around the world, 2/3 are based in the developing world, primarily accessing the internet by mobile connections. Vecna Cares’ CliniPAK software and 3G-enabled tablets powered by Qualcomm Snapdragon processors streamline and automate the in-field data capture and reporting process and help improve health outcomes in midwifery in rural Nigeria.
How can the private sector of the developed world continue to see successes like these? Leigh Gunkel-Keuler, Head of Corporate Affairs for Pfizer in South Africa, stressed the need for local partners, sustainable business, identifying and engaging key stakeholders.