International Trade Favours Multinational Corporations
Roberto Azevêdo is the Director-General of the World Trade Organization
GENEVA, Jul 20 2016 (IPS) – Trade is sometimes thought of as an economic activity that only favours the large corporations. While we may disagree, the reality of international trading is often harder and more expensive for Micro, Small and Medium Enterprises (MSMEs). The smaller the business, the bigger the barriers can seem.
MSMEs are responsible for the largest share of employment opportunities in most economies, up to 90% in some countries, this is especially true when looking at equal opportunities for young workers and women.
The economic importance and centrality of MSMEs is at odds with their ability to participate in international trade. This is true in both developing and developed countries. There is a significant opportunity to provide a truly inclusive trading system- offering MSMEs a chance to develop their potential and help transform many lives around the world.
This means tackling the barriers they face when participating in trade, these include tariffs, costly border procedures, and trade financing, in addition to the fixed costs involved with meeting particular national standards or other non-tariff barriers, all of which can become particularly difficult demands for MSMEs. All these are larger obstacles to MSMEs than bigger firms.
Slow and costly border procedures place a greater burden on MSMEs than larger firms. Additionally, MSMEs often struggle to access trade finance. Globally, banks reject over 50% of all requests for trade financing placed by smaller firms compared to just 7% of multinational companies.
Now the World Trade Organisation members want to explore more options to remove the above mentioned barriers, which is a promising start.
Since the Nairobi Ministerial Conference in December last year, WTO members have been discussing a number of issues, with MSMEs as a constant feature. But so far the discussion has been quite broad.
I think it would be useful to establish a detailed sense of what the major barriers and priorities are for MSMEs and what we can potentially do to help. This could be through Aid for Trade support, through the regular work of the WTO, through negotiating new trade agreements, or a whole range of other avenues.
Due to the success of Bali and Nairobi, the interest in our work here is extending to other constituencies. In response to requests, we have facilitated meetings with the private sector and the academic community in recent weeks.
About sixty business leaders attended the private sector discussions. I ensured that the organisers of the event invited representatives from a variety of small and large businesses, developed and developing countries, and a wide range of sectors. They debated the challenges they face in conducting trade operations and how the WTO can help in dealing with them.
Their suggestions included:
● improving the regulatory environment for MSMEs through the digitalization of government processes, improvement of access to public procurement markets, and reduction of compliance costs,
● developing coordinated capacity-building and certification programmes to facilitate the inclusion of MSMEs in global production networks,
● and conducting research on how MSMEs can fit into these global value chains.
These points are in line with those raised in the conversations between representatives and while a great beginning, will still need to be further developed. There are however, three elements where the debate is perhaps slightly more advanced.
Firstly, the quickest, simplest step we can take to support MSMEs, would be implementing the Trade Facilitation Agreement.
MSMEs often cite burdensome customs procedures and regulations as major obstacles to their participation in trade. This is because large firms, especially multinational firms, are better equipped to navigate complex regulatory environments. The more time it takes to export, the more exporting is dominated by larger firms. Indeed, the evidence suggests that when the time spent to clear exports is reduced, MSMEs are more likely to increase their export shares than large firms.
So the Trade Facilitation Agreement has the capacity to boost MSMEs’ trading capacity. The latest ratification was received from Madagascar, taking the number to 83, and we expect to receive more in the coming days. We need to keep up the momentum on this front.
Furthermore, it’s clear that being technology-enabled helps small firms to export. A survey conducted by eBay in over 22 countries found that, on average, 97 per cent of tech-enabled firms export. In contrast, among more traditional MSMEs, the proportion of exporters ranged between 2 and 28 per cent. This highlights the importance of encouraging the further use and implementation of e-commerce technologies in MSMEs.
However, we can’t just assume that MSMEs will continue to benefit from greater opportunities once they are connected. Connectivity is fundamental, but not sufficient. The reality is that, if we just cross our arms and do nothing, we may see the opposite effect. E-commerce may actually promote the concentration of opportunities for big companies and services suppliers.
It is therefore useful to look at how new technologies can facilitate the participation of small players in digital trade, and in global value chains. We should look at how we can ensure that, through multilateral rules, MSMEs benefit from harmonized procedures, improved connectivity, and reduced operational costs.
In short, we should look to ensure that small suppliers can market their products, goods and services in a timely fashion, with competitive prices and reliable customer support. Only then will consumers have full confidence in buying from MSMEs in the digital environment.
Lastly, there are huge gaps in trade finance provisions for MSMEs, and this is a major trade barrier. Members will be aware that the WTO recently published a report setting out some of these issues in detail.
And we proposed some possible actions which included:
● working with partners to enhance existing trade finance facilitation programmes to reduce the gaps in trade finance,
● addressing the knowledge gaps in local institutions to help improve the capacity of local financial sectors,
● increasing dialogue with regulators to help ensure that trade and development considerations are fully reflected in the implementation of regulations,
● and improving the monitoring of trade finance provision, as better market intelligence would enable us to be more responsive to problems as they emerge.
These are just some reflections, based on the recent debates in and around the trading viability of MSMEs and the role WTO can play in encouraging and implementing new trade practices and regulations to boost support for MSMEs.