Developing Countries: Potential Constrained by Trade Barriers

Developing countries play an increasingly important role in world trade. But the growth-promoting potential of free trade remains strongly constrained by trade barriers.

International trade has changed fundamentally in recent decades. The developing countries’ share of global exports grew from 18 percent in 2000 to 28 percent in 2012, but has plateaued at that level. The principal reasons for this are the collapse in raw material prices and the slowing of Chinese economic growth. Alongside poor governance, import and export barriers still significantly hamper trade for many developing countries.

Share of global exports: Developing countries catching up

Share of global trade in goods and services by country group, percent

The poorer a country, the higher its tariffs and technical trade barriers tend to be. There is also a significant need for improvement in trade-related institutions and infrastructure. High import costs weaken productivity and exports, especially where intermediates represent more than two-thirds of world trade.

Poorer Countries Still Face High Import Barriers

Poorer countries in particular continue to face high export barriers, despite preferential market access to most industrialised countries. The least developed countries often produce goods to which particularly high tariffs are applied, such as textiles and agricultural products. Moreover, developing countries now export more goods to other developing countries than to industrialised countries. But the trade barriers between developing countries are considerably higher than those for exports from developing to industrialised countries.

With the Trade Facilitation Agreement and decisions of the 2015 WTO Ministerial Conference in Nairobi on rules of origin, agricultural export subsidies, and cotton, the WTO has already implemented important steps to improve the integration of poorer developing countries in world trade. But legal uncertainty, high import costs, and market access barriers in other developing countries continue to considerably constrain trade profits and economic growth. Currently 34 of the 48 least developed countries (LDCs) are WTO members. Eight of them have already ratified the Trade Facilitation Agreement (TFA). The TFA will come into force once it has been ratified by two-thirds of the (currently 162) WTO members. It inter alia provides for technical support to LDCs to improve trade-related institutions and infrastructure, as well as to simplify customs procedures and make them more consistent. In total, 81 countries have signed the agreement as of July 2016.