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Boosting resilience after Covid-19: Aligning climate and trade strategies for LDCs

Dr Jodie Keane and Sarah Colenbrander from ODI explain why this is an important moment to ensure that Least Developed Countries have enough support in the trade and climate arenas – and that globally, trade and climate policies are better harmonised.

The UN has identified 46 countries that face severe barriers to sustainable development: the Least Developed Countries (LDCs). The LDCs face high levels of absolute poverty, with average incomes of less than US$1,025 a year, which leads to severe challenges in securing health and education goals, compounded by extreme vulnerability to economic and environmental shocks. In 2020, LDCs will experience their worst economic performance in three decades because of the Covid-19 pandemic, which may reverse recent developmental progress. 

In spite of this, Vanuatu graduated on 4 December 2020. And, based on the recommendations provided by the United Nations Committee for Development Policy and its last review process of progress across selected indicators in 2018, a number of other LDCs are expected to leave the category soon. This includes the Solomon Islands (2024), with recommendations for eligible LDCs such as Bangladesh and Nepal, amongst others, expected at the 2021 triennial review.

Of course, the Covid-19 pandemic might alter some LDCs graduation trajectories. But for others, whilst graduation marks huge economic and social progress, risks can arise as they lose privileged access to international support measures, such as more favourable market access. Undoubtedly, these risks will be exacerbated by the ongoing global pandemic, economic recessions and climate emergency.

These countries urgently need support to secure  smooth transition strategies from LDC status to developing country status. And this has implications for discussions under the climate change framework and UNFCCC process. As we approach COP26 and the next ministerial of the World Trade Organisation (referred to as MC12) there is an opportunity to ensure that both the climate and trade support architecture is mutually supportive of graduating LDCs’ smooth transition strategies.

Support to expand trade

The LDCs are home to 12% of the world’s population, but their share of merchandise exports is less than 1%. This is a problem because trade is an important engine of poverty reduction and economic development, boosting living standards by stimulating innovation and productivity. Export-oriented industrialisation has created jobs and increased incomes for millions of people. Meanwhile, importing more affordable goods and services disproportionately benefits low-income households.

The LDCs are currently supported through a range of preferential trade provisions. Important mechanisms such as Aid for Trade, support LDCs in particular to build production capacity and trade-related infrastructure. However, these instruments require some adaptation in order to meet the LDCs’ pressing development needs, compounded by the challenges of climate change.

In particular, graduating LDCs face the removal of special trade treatments, and a consequent blow to their most promising export-orientated industries. The loss of important markets or imposition of new tariffs will compound the huge economic shock of Covid-19. For example, in the case of Bangladesh, the estimated revenue losses arising from graduation and movement to the next best trading option available in the European Union – which accounts for the majority of garment exports – could reach more than  $1.6 billion. The LDC graduates will need continued economic and technical support over the next decade to safeguard their progress and LDCs in transition will need targeted support.

Support to climate-proof trade

Many of the LDCs have been hit hard by recent climate shocks, including catastrophic storms in Mozambique, the Solomon Islands and devastating droughts in Eritrea, Ethiopia and Somalia. Such hazards will only become more frequent and severe. The small island developing states in particular – including imminent LDC graduates such as the Solomon Islands – face an existential threat from climate change. In response, the LDCs have formed an influential and ambitious bloc in the UN climate negotiations.

The year ahead will be hugely significant for climate change, with COP26 the first real test of the Paris Agreement (PA). The LDC Group and the Alliance of Small Island States were pivotal players in the adoption of the temperature goal of 1.5C in the Paris Agreement. In 2020 –  the first year of implementation of the agreement – these nations collectively are spearheading ambitious action to keep all nations true to the ambitions of the PA.

The diplomatic effort and public appetite for bolder climate action offers an opportunity to put climate change firmly in the heart of trade policy and negotiations going forward.

Many of the topics on the table at COP26 already have huge significance for trade, including carbon markets and climate finance. It is equally important that these and other climate issues are surfaced in trade forums, including:

ODI has helped set the global agenda on trade policy since the 1990s, and continues to provide cutting-edge research on value chains to the WTO and national policymakers. Now, we are working to ensure that trade policies are aligned with climate goals and that trade rules nurture low-carbon economic development. In particular, we want to see trade support measures adapted to take climate change into account and to support graduating LDCs to pursue a low-carbon, climate-resilient transition that boosts productive capacity.

The next decade is crucial. Not only must we must deliver the Sustainable Development Goals by 2030, but we must halve greenhouse gas emissions (relative to 2010 levels) in the same period. This will only be possible if we align climate and trade policy in a way that works for the poorest.

Image: Bangladesh harvest, credit Bryon Lipincott, flickr.com

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