Date: 24/04/2012

Source: The World Trade Organisation

Title: WTO: Lamy: Address by the Director-General, at the international trade centre's panel discussion, Doha

Executive Director of the ITC, Patricia Francis
Executive Director of the Qatar Export Development Agency, Hassan Khalifa Al Mansoori
Ambassador Badr, Permanent Representative of the Arab Republic of Egypt in Geneva
Ladies and gentlemen

I thank you for inviting me to deliver the keynote address today on an issue which is extremely critical and timely. The unprecedented events in the Arab region in 2011 have truly been transformative in scope and in reach. This ’Arab Spring’ has reminded us of the importance of creating a facilitative economic environment for the development of fundamental economic variables like employment. Particularly in the Arab region, unemployment, especially among the youth, is a major socio-economic challenge. This is also a growing concern in many parts of Africa with an increasingly youth-based population.

It is an unfortunate reality that the Arab states lag behind most other regions in creating full, productive and decent employment, particularly for women and youth. Over the last two decades, the region had one of the lowest employment-to-population and labour force participation ratios in the world. According to a recent report released by the International Labour Organization, one out of four Arab youths is unemployed. In a region where unemployment rates are already very high and growing at a fast pace, the Arab Labor Organization (ALO) concluded in a recent study that the level of unemployment, especially among the youth, is currently estimated to be 20 million. According to UNDP estimates, the Arab region needs to create around 51 million new jobs by 2020 just to keep the unemployment rate from increasing. Youth unemployment is particularly high, reaching levels of 30-40% in some countries. The situation is particularly serious for young women, as reflected by the 2:3 ratio of male to female youth unemployment rates.

Moreover, education in this region is not a guarantee against unemployment. In fact, unemployment tends to increase with schooling and exceeds 15% for university graduates in Egypt, Jordan and Tunisia. Equally worrying is that economic growth has in many cases not translated into the creation of decent employment. High unemployment rates do not only strain household incomes, but can be a force of political instability.

Against this backdrop, there is a pressing need for improving the employment situation in the Arab region by creating more and better jobs. There is an urgency to promote entrepreneurship and business in the Arab region. As in most developing countries, small and medium enterprises (SMEs) can play an important role in contributing to job creation and consequently to development at large. Statistics show that SMEs represent 90% of total companies in the vast majority of economies worldwide and provide 40-80% of total job opportunities in addition to making a significant contribution to the GDPs of many countries. In the Arab region, the landscape is similar, with SMEs contributing to between 25% and 40% of the GDP in Egypt. In countries like the UAE, they account for 94.3% of the economic projects in the country, employ about 62% of the workforce and contribute around 75% of the GDP. In Yemen, SMEs account for 96% of the GDP, 77% in Algeria and 59% in Palestine.

Many Arab countries recognize the important role that SMEs play in their economies and have put in place policy measures to promote them, with a view to achieving economic and social development. According to the International Finance Corporation (IFC), there is a positive relationship between a country’s overall level of income and the number of SMEs per 1,000 people. The World Bank’s Doing Business reports indicate that a healthy SME sector corresponds with a reduced level of informal or “black market” activities.

Despite the perceived importance of SMEs for the Arab region, SMEs continue to face a large number of challenges, including tariff and non-tariff barriers which prevent them from moving into valuable export-oriented industries and moving up the value chain. In fact, given their small size, SMEs are more vulnerable to sudden changes in tariffs than others. This is why the certainty and predictability which the multilateral trading system offers is of extreme importance to these traders. The multilateral negotiations are not just about esoteric machinations, but rather translate into dollars and sense on the ground. Opening up borders, lowering trade and tariff barriers, increasing transparency in trade facilitation procedures all give SMEs the opportunity to access new markets and become more competitive.

Coupled with the continued existence of tariff and non-tariff barriers, one of the other key reasons why SME exporters in the Arab region are not being able to take advantage of trade opportunities is because they do not have an exportable offer which is competitive in international markets. Such challenges range from weak productive capacities to weaknesses in the domestic business environment to lack of institutional support to limitations in key areas of trade competitiveness, such as packaging, branding, quality, certification and marketing. Aid for Trade can play a critical role in this area by helping to build up the supply side and productive capacity of these SMEs. This region can play a much more prominent role in the global Aid for Trade discourse: both in helping countries in the region to identify their trade-related priorities and by bolstering the trade-related assistance offered by traditional donors. There are many countries in the region who have been giving Aid for Trade for some time but there is room for even more improvement.

Preferential Trade Agreements (PTAs) can complement the multilateral system by providing a platform to overcome such trade barriers and facilitate sharing of trade-related assistance and expertise, especially at the regional level. The WTO’s own research on PTAs, which were the focus of our World Trade Report in 2011, shows that these can be valid trade-creating instruments if the focus is truly on unravelling barriers to trade rather than creating new ones. This is especially the case in the area of regulatory frameworks. There is a danger that PTAs can lead to a web of overlapping regulatory frameworks which is not good for levelling the global playing field, and it is not good for business: neither large multinational actors nor SMEs. However, if appropriately crafted, PTAs can create a conducive business environment through the elimination of administrative burdens, border controls and tariff barriers.

In the case of the Arab countries, however, trade integration has not gone very far, despite deep cuts in tariffs. This is largely due to trade impediments, including non-tariff barriers that represent major obstacles for exploiting the opportunities offered by the existing trade agreements. I consider this element of non-tariff barriers to be so important that it will be the focus of our World Trade Report 2012.

Out of the several preferential agreements that have been signed among the member states of the Arab League, the Greater Arab Free Trade Area is the most remarkable one, comprising 17 countries of the region. These efforts have contributed to tariff reductions since the mid-1990s: in fact, while the average tariff level which is applied among member states of the Arab League amounts to 0.4%, competitors from outside the League face average tariffs of around 5-6%. In spite of such on-going efforts to cut tariffs and to sign and implement preferential agreements, regional trade integration among the member states of the Arab League is moderate compared with other common markets, such as the European Union (EU) and the Association of Southeast Asian Nations (ASEAN). In fact, the share of total trade which takes place inside the League of Arab States (LAS) amounts to merely 11%, and thus represents only a fraction of the trade conducted with the 27 EU member states. As mentioned, the remaining obstacles go far beyond conventional tariff measures. This is an issue which I also see on the African continent. I was pleased that African leaders took the initiative at the January African Union Summit to endorse a roadmap on boosting intra-African trade which is focused on identifying and breaking down barriers to regional entry. Similar political commitment by leaders in this region may be warranted.

Empirical evidence shows that regional integration can have substantial direct and indirect employment creation effects on the economy. What then could be the reasons why the League of Arab States countries are not being able to take advantage of regional integration opportunities? I take note of the valuable analysis included in ITC’s background paper for this panel discussion which presents significant evidence of the potential benefits of trade integration within the region and the possible effects it would have on employment, particularly among the youth and women. It presents the potential welfare gains, including for job creation, of removing trade barriers within the region. The paper also identifies export sectors which have the largest scope for creating jobs and unleashing the “entrepreneurship” potential of the youth.

In a region where an average 27% of the active population is unemployed and 60% of these are estimated to be the youth, urgent measures must be taken to remove trade impediments affecting regional trade. This will help unleash the potential of youth entrepreneurship and create jobs for an increasing number of highly skilled young people.

What measures need to be taken to stimulate greater regional integration and ensure that the private sector can be a powerful engine of economic growth, productivity, innovation and employment and can contribute to trade and employment?

First, it is essential that the private sector drives this process and is fully involved in shaping trade policies and trade negotiations. SMEs would benefit from open, balanced, and transparent government-business consultations as part of the trade policy process.

Second, it is urgent that Aid for Trade becomes a more institutionalized element in your trade and development vernacular. Aid for Trade can help to bolster productivity and help businesses to take advantage of market access opportunities, including in regional and global supply chains.

Third, governments need to create conducive frameworks for the private sector to conduct business and be competitive in the global market. Investing in trade facilitation is one of the more effective ways to do this. Support for the trade facilitation negotiations at the WTO will be a clear sign that countries in this region are serious about reducing the cost of trading.

And fourth, trade must be effectively mainstreamed in your development policies - including in your employment generation policies. Seeing the relationship between trade and employment and institutionalizing this in your national and regional dialogues will help to ensure that the two areas are mutually supportive.

I understand that in the discussion today, panellists will bring to life some key competitiveness-related challenges which they have been confronted with and share their experiences on how they have overcome these challenges and grown their business. I wish you a productive discussion and thank you once again for inviting the WTO to address you.
Thank you