Speech by SCIT on Trade and Poverty (English only)
Following is a speech by the Secretary for Commerce, Industry and Technology, Mr John Tsang, at the Panel Discussion on Trade and Poverty of the Informal Ministerial Meeting on Least Developed Countries (LDCs) held in Zambia yesterday (June 27, Zambia Time): (English only)
I am pleased to have the opportunity today to gain a more in-depth appreciation of the concerns and needs of the LDCs on the current round of multilateral negotiation.
There is a strong link between trade enhancement and poverty reduction, but clearly, trade is no panacea that cures all the ills of poverty either. Factors of history, geo-politics, macroeconomic cycles and intra regional complementarities all contribute to the success of individual economies. But trade does play its part as in the case of my home, Hong Kong. I would like to share with you how we in Hong Kong have been able to overcome poverty and join the company of the better off economies.
These days when people think about Hong Kong they probably visualise an ultra-modern city. What most do not realise is that only one generation ago, when I was a young boy, we were still a sleepy entrepot, struggling to deal with the effects of the United Nations ban on trade with the Mainland and an influx of over two million refugees. I vividly remember squatter settlements going up in flames, water rationing and the daily struggle of families simply to make a living.
We did not have many choices, but we had a tradition as a free port and we decided to stick with it - no tariffs on goods moving in or moving out. We decided to keep our taxes low so as to encourage investment and deliberately determined to keep government out of things which business does best. So we concentrated our limited resources on health, emergency housing, basic education and, of course, law-and-order. We sold land to whoever would buy it at open auctions; we did not try and target investment or "pick winners". The only concession we gave investors was a tax write-off for purchases of new machinery and equipment. This did not stop our businessmen begging for more, but we resisted temptation and they got used to the idea that they had to find their own way.
That may be too strong medicine for some, but it worked for us. In fact it worked so well that pretty soon industries in developed markets began to complain about unfair competition! So we got hit with restraints on textiles and clothing and anti-dumping actions and all the usual irritants, and the few Commonwealth preferences we used to enjoy were taken away. However, the lesson we learned from this experience was that when you are a small economy and the big boys begin to bully you, your best defence is the multilateral system. That is why Hong Kong has put so much effort into fighting its corner in the then General Agreement on Tariffs and Trade, now World Trade Organisation (WTO), and into improving and strengthening its rules and institutions.
So from our own sometimes painful experience we know that openness to international trade inspires economic growth and income gains, thus allowing poverty alleviation. But we also know that one-size-never-fits all. This is one of the reasons why the Doha Development Agenda (DDA), which aims at liberalising trade, has placed at the heart of its programme the needs of developing countries (DgCs) and LDCs. And this is also why the DDA has recognised in particular the vulnerability of LDCs and vowed to help them secure a beneficial and meaningful integration in the multilateral trading system.
Note that a World Bank study has indicated that developing countries that increased their integration into the world economy over the two decades ending in the late 1990s achieved higher growth in incomes, longer life expectancy and better schooling. They include countries like China, India, Hungary and Mexico and their annual growth rates increased from 1% in the 1960s to 5% in the 1990s. While different countries at different levels of development may have different potentials and constraints to benefit from the multilateral trading system, the crux is that trade does help improve the life of many.
I believe that we are presented with a "once in a generation" opportunity under the DDA to raise the development of all countries particularly that of the LDCs. Note that opening up of the agricultural sector, on which the livelihood of many LDCs depend, provides a good opportunity for economic integration and poverty alleviation. Enhanced market access for agricultural products and reduction of trade-distorting subsidies could help boost the economic performance of those agricultural LDCs. Also, the negotiations on services, non-agricultural goods, and trade facilitation, as we have elaborated this morning, could provide development opportunities to LDCs through reduced cost of inputs and enhanced customs procedures.
Note that the DDA, nonetheless, also presents challenges to LDCs. For example, elimination of subsidies on agricultural products could have a negative impact on net food importing LDCs. There are also the question of preference erosion and loss of revenues. It is therefore of utmost importance that WTO Members give serious thoughts to the possible mechanisms that could help address these possible setbacks to LDCs. I note, in this regard, that special and differential treatment and other special instruments (like Special Products and the new Special Safeguard Mechanism) are under consideration in the DDA negotiations.
But allow me also to stress that trade is not a panacea for poverty. Trade could only work to realise its power over poverty when LDCs are prepared to complement international opportunities with national reforms that help capture and maximise these potentials. Abandoning trade or reform could not help provide support or alleviate the hardship but only perpetuate stagnant economies.
The WTO has been helping LDCs and DgCs on their adjustments through significant investment in technical assistance and capacity building activities and enhanced co-operation and policy coherence with other international agencies like the International Monetary Fund and the World Bank. I believe that the WTO, while preserving its nature of a trade forum, will continue to assist the LDCs and DgCs in further trade liberalisation in close co-operation with these relevant international agencies, in recognition of the fact that trade alone does not provide all the answers.
The World Bank's Global Economic Prospects 2004 Report has estimated that the Doha round of negotiations, if successful, can reduce global poverty by some 140 million people by 2015. As Chair of Sixth Ministerial Conference, I will continue to work closely with all WTO Members, including LDCs, with a view to paving the way for the early and successful conclusion of the Doha Round. In this regard, I call upon all Members to take forward the process with realism and flexibility for the delivery of a credible "July approximations" and a meaningful Hong Kong Ministerial.
Ends/Tuesday, June 28, 2005
Issued at HKT 18:36