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Why agricultural product standards matter for small traders in developing countries

Ana Fernandes's picture

The successful conclusion of the Trans-Pacific Partnership (TPP) negotiations has generated a lot of interest. While much of the discussion has focused on what the mega-regional trade agreement – the largest in a generation – means for environmental or labor standards, equally important are the regulatory standards on agricultural and food products known as Sanitary and Phytosanitary (SPS) measures, which are addressed in Chapter 7 of the agreement.  
 
But how much do SPS standards really matter for trade?
 
Countries impose food safety standards for good reason, namely to protect the health of domestic consumers. However, domestic food safety standards often deviate from international ones. From an exporter’s point of view, such standards are likely to be seen as barriers to entry. Producers must modify production processes in order to meet each individual market’s product regulations, which raises the cost of the product for consumers. Economists and policy-makers are hungry for micro-level evidence on the effects of such standards on trade.
 
New World Bank Group research (Fernandes, Ferro, Wilson 2015) offers a first look at how a specific set of mandatory product standards—in this case, the maximum pesticide residue permitted on unprocessed food—impacts exporters. Novel firm-level data for exporters from 42 developing countries from 2006-2012 were analyzed along with data on pesticide standards for 243 agricultural and food products in 63 importing countries. We found that pesticide standards differ greatly across countries.

In the lead up to Nairobi, is there hope for global trade governance?

Anabel Gonzalez's picture
 World Trade Organization


The World Bank Group has often argued that delivering outcomes in WTO negotiations around the core issues of the Doha Round is critically important for developing countries. Let’s take one example: with three-quarters of the world’s extreme poor living in rural areas, fulfilling the Doha Round mandate on agriculture could make a real contribution to the Bank Group’s goal of ending extreme poverty by 2030.
 
But recent news reports on global trade talks suggest that WTO Members are finding it hard to develop a shared vision on key issues and are unlikely to deliver significant progress at the upcoming WTO Ministerial Conference in Nairobi from December 15-18. Efforts are being made to produce outcomes on important issues like export competition in agriculture but large gaps remain only one week before the Ministerial Conference.
 
This continued impasse on the Doha Round is indeed a significant missed opportunity, but should this be cause for despair about the future of global trade governance? We don’t think so. There have been developments in the global trade agenda that are worthy of our attention, which should provide some hope in the lead-up to the Nairobi conference that with political will, it is possible to move forward. Here are five of these developments:  
 

Growth and development: Why openness to trade is necessary but not sufficient

Selina Jackson's picture
Photo © Dominic Chavez/World Bank


We are experiencing a battle of ideas regarding the state of the global economy and prospects for growth. Larry Summers has been leading the group of economists proclaiming that the world entered an era of secular stagnation since the global financial crisis. On the other end, Standard Chartered Bank and other players have been arguing that we are experiencing an economic super cycle—defined as average growth of around 3.5 percent from 2000-2030—due to strong growth in emerging markets and fueled by a global demographic dividend.

There is not even agreement on the factors that drive global growth and development. While parts of the Americas and Asia just concluded the Trans Pacific Partnership (TPP) and recent World Trade Organization (WTO) agreements on trade facilitation and information technology products show progress is possible, the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the U.S. and the EU remain highly controversial and the upcoming WTO Ministerial in Nairobi will likely underwhelm. 

However, if you look at the facts, the situation is very clear:

How can G20 trade policies benefit developing countries?

Michele Ruta's picture
Cambodia garment factory (Chhor Sokunthea / World Bank)


A key topic for the G20 this year is what can be done to boost inclusiveness in the global economy. Ministers and officials, with advice from the World Bank Group and others, have been looking into what policies they can adopt to maximize the development prospects of lower income countries outside the G20 (what the Turkish Presidency has termed “low-income developing countries” -LIDCs). A critical area of action is in trade – an area where G20 countries have asked the Bank Group to survey the current situation and provide recommendations.

In our work, we found that the value of LIDC imports and exports has increased substantially over the last decade, but it still represents only between 3 and 4% of world trade (Figure 1). The share of LIDC exports in the global services market is similarly low and has remained stagnant during the last 3 decades. Although there are some exceptions – Vietnam and the Philippines – LIDCs are poorly integrated into global value chains (GVCs) – they constitute only 3% of world imports in parts and components.

G20 countries are the main trading partners of LIDCs. Around 70% of imports of LIDCs come from the G20 and around 80% of LIDC exports are directed to the G20. Trade costs between LIDCs and any G20 country, however, are systematically higher than the trade costs between G20 countries or other non-LIDCs and any G20 country (Figure 2).


Naturally, many domestic factors that inhibit the productive capacity of LIDCs contribute to the low connectivity of LIDCs to GVCs and world trade more generally. However, trade policies of G20 members can help low-income developing countries integrate in the world economy. In our analysis for the G20 we reviewed key G20 trade policies and how they could be improved to benefit LIDCs.

Exploring the nexus between trade policy and disaster response

Selina Jackson's picture
 Nugroho Nurdikiawan Sunjoyo/World Bank


Strong trade connectivity can help disaster response and recovery by ensuring that humanitarian relief goods and services get to where they are needed when disaster strikes.  Trade policy measures, however, can sometimes have adverse effects.  Research led by the World Bank highlights that a common complaint of the humanitarian community is that customs procedures can delay disaster response, leaving life-saving goods stuck at borders.  Other measures such as standards conformity procedures, certification processes for medicines, and work permits for humanitarian professionals can slow the delivery of needed relief items.  Border closures can exacerbate situations already marked by human tragedy and unlock   full-scale economic crises. 
 
This nexus between trade policy and humanitarian response was discussed at an event organized jointly by the International Federation of the Red Cross and Red Crescent Societies (IFRC), the World Bank Group and World Trade Organization at the 5th Global Review of Aid for Trade on June 30 in Geneva.  Among the steps suggested to address concerns were rigorous disaster planning; better coordination between humanitarian actors, implementation of the WTO's Trade Facilitation Agreement and better recognition of the role of services.  

Women traders in Africa’s Great Lakes

Cecile Fruman's picture


On the northern tip of Lake Kivu, where eastern Democratic Republic of Congo (DRC) meets Rwanda, the pedestrian border crossing connecting the lush town of Gisenyi, Rwanda and the frenetic city of Goma in the DRC is called ‘’Petite Barrière’’. The name is misleading: the ‘’barrière’’ is in fact large and crowded, and features one of the highest daily flows of traders in Africa; between 20,000 and 30,000 traders cross it every day. For them, as for many others in the region, cross-border trade is a critical source of income.

Making Trade More Inclusive

Anabel Gonzalez's picture

Also available in: Français

Photo Credit: Arne Hoel, World Bank Group

This week, I will be joining a panel of women in trade at the World Trade Organization’s Public Forum in Geneva, Switzerland. Along with Lilianne Ploumen, Trade Minister from the Netherlands; Yuejiao Zhang of China’s International Trade and Economic Arbitration Commission; former United States Trade Representative Susan Schwab; and Amina Mohamed, Kenya’s Cabinet Secretary for Foreign Affairs; we will be discussing how to make trade work more inclusively. For me, the focus will be how to make trade work more inclusively for the poor living in developing countries.

Investigating the forces that drive local food prices

Stephanie Fangyu Liu's picture

What influences fluctuations in local food prices? Is it domestic drivers like weather and harvest cycles? Or external forces like world prices?
 
World Bank economist John Baffes and consultant Varun Kshirsagar explore these questions in their recent post on the Let’s Talk Development blog.  In a working paper that examines evidence from Tanzania’s maize market, they provide valuable insight on the issue of export bans and find that more open trade policies will have increasing relevance for Tanzania’s future.

Read more here

 

Traditional trade policy is alive and kicking

Nihal Pitigala's picture

With the growing importance of global value chains as a conduit for trade integration, much of the recent empirical analysis and other literature has focused on the impacts of non-tariff barriers, behind-the-border measures, and other transaction costs. Traditional barriers, tariffs in particular, have generally been dismissed as less disruptive to trade and, therefore, have fallen out of the policy debate. However, evidence is surfacing from developing countries that import taxes are on the rise, increasing protection, and their disruptive tendencies are often disguised. Along with the rising tendency to subsidize domestic industries, these additional taxes tend to further augment the inherent anti-export bias, which can be particularly detrimental to trade-led development strategies and policies in developing countries. 

A BIT far? Geography, Investment Agreements, and FDI

Gonzalo Varela's picture
Despite hard times at home, emerging market multinationals (EMMs) continue their impressive rise in the global marketplace. In 2014, outward foreign direct investment (FDI) by developing and emerging economies increased by 23 percent, reaching a record level of $468 billion or 35 percent of global FDI flows (UNCTAD, 2015). In little more than a decade, emerging market firms like India’s Tata Group, South Africa’s SABMiller, and China’s Haier, have established operations around the world, becoming global leaders in their respective products.

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