The Hindu Business Line : UNCTAD moots support for least developed countries

New Delhi, July 23 For the 767 million people living in the poorest countries of the world often described as the least developed countries (LDCs) mere duty-free entry of their exportable products into the rest of the world markets is not enough, as is the practice championed by the World Trade Organisation’s so-called ‘Aid For Trade.’

The UN Conference on Trade & Development (UNCTAD), in its latest LDC Report released in Geneva, said that even as LDCs development partners have expressed strong support to ‘Aid for Trade’ with widespread support for scaling up this kind of aid, technological learning and innovation are key to successful cases of trade development.

“However, technological learning and innovation have been conspicuously absent from past efforts to provide aid for trade through the Integrated Framework and are neglected with current attempts to define the scope of the subject,” the Secretary-General, UNCTAD, Dr Supachai Panitchpakdi, said in his overview summing up the 2007 LDC Report.

Stating that aid for technological learning and innovation for tradable sectors be a key component of aid for trade, UNCTAD asked LDCs development partners to adopt best practices which are evident from successful cases of trade development, such as palm oil in Malaysia and Nile perch in Uganda.

This way, technological development should be seen as an integral part of the definition of ‘supply-side capacities’, it said.

The UNCTAD said that there are some ways in which trade preferences for LDCs could be enhanced not simply by extending their depth and coverage but also by linking them to supply-side support, for instance through complementary measures to encourage foreign direct investment (FDI).

Technological Upgrading

From the viewpoint of technological assimilation, it is clear that trade preferences, in particular in relation to garments, have successfully stimulated the initial implementation of manufacturing activities within some LDCs, but they, however, do not explicitly enable the diffusion of best practices to domestic firms within a country and do not encourage technological upgrading.

Against this backdrop, UNCTAD said it is worth examining whether trade preferences could be supplemented with some kind of technology fund that seeks to leverage the technological learning effects of the productive activities that are stimulated through such preferences, in particular through diffusion of best practices and encouragement of upgrading.

As the transitional arrangements associated with the ending of the Agreement on Clothing and Textiles come to an end, this is likely to be particularly important in order to ensure the sustainability of extant activities in a number of countries, the report said adding that work should be done on the possible design of such a fund.

Unless the LDCs adopt policies to stimulate technological catch-up with the rest of the world, they would continue to fall behind other countries technologically and face deepening marginalisation in the global economy. The focus of those policies should be on “proactive technological learning” by domestic enterprises rather than on conventionally understood technological transfer and on commercial innovation rather than on pure scientific research.

The report said there is a desire to find a new, post-Washington consensus policy-model, as well as the institution that it is in this area-promoting technological change—that it is possible to find more effective policies to promote growth and poverty reduction.

Sustained Growth

“If LDCs do not participate in this policy trend they will be increasingly marginalised in the global economy, where competition increasingly depends on knowledge rather than on natural-resource-based static comparative advantage,” the report said.

It notes that “accelerated and sustained growth depends on diversification “out of economic activities subject to diminishing returns into activities with increasing returns, which generally are knowledge-based.”