WTO examines how landlocked nations can beat trade isolation

Imports and Exports | | MIC Customs Solutions |

Why do landlocked countries face more economic problems than most when it comes to trade?

A new report from the World Trade Organization (WTO) is trying to raise awareness of the unique predicament faced by developing nations that do not have access to coastlines.

Presenting the 'Easing Trade Bottlenecks in Landlocked Developing Countries' document, director-general of the governing body Ngozi Okonjo-Iweala warned landlocked developing countries (LLDCs) are remaining isolated from the world's largest markets and struggling to recover from the COVID-19 pandemic as quickly as their neighbors with sea borders.

But what exactly are LLDCs - and what can be done to ensure fairer access? Here, we'll take a closer look.

What are LLDCs?

A total of 32 nations fall into this category, from Burkina Faso and Kazakhstan to Nepal and Paraguay. Of these, 26 are members of the WTO and six are still observers. Despite their large numbers, they made up only just over one per cent of world trade during 2019.

According to the United Nations, their trade costs are 1.4 times higher than those of developing countries with a coastline due to factors such as supply chain issues, reliance on transit countries acting as middlemen and global shocks such as the coronavirus pandemic.

What unique issues do LLDCs face?

In the WTO report, Ms Okonjo-Iweala warned LLDCs face "particularly acute versions of realities that all members must grapple with" as a direct result of their geography.

For example, they are likely to struggle with cumbersome procedures at national borders as they attempt to import and export goods, as well as poor transport infrastructure to send and receive products in the first place.

Furthermore, transit time once shipments are out is typically extremely long due to difficult terrain and remoteness.

This means that LLDCs must pay double the costs transit countries face and are forced to wait inordinate amounts of time to trade in a way that coastal countries take for granted.

As a result, their competitiveness in global markets is poor and investors tend to avoid them, which has the knock-on effect of hampering economic growth and making it difficult to achieve targets from the Sustainable Development Goals.

The UN estimates development in LLDCs is therefore 20 per cent lower than it would be if they were not landlocked, plus they are often forced to rely on exporting a limited number of products.

What's more, the situation for LLDCs is likely to have worsened since the start of the COVID-19 pandemic. A previous report published earlier this year by the WTO Secretariat found that although some progress has been made in expanding merchandise exports, services exports from such countries are declining.

Trade-restrictive measures implemented by governments across the globe in an attempt to halt the spread of the virus have undoubtedly exacerbated the already precarious predicament they face, while delays in shipments and technical problems will also have made trade more difficult.

What can be done?

There is already an action plan in place for LLDCs covering 2014 to 2024 called the Vienna Programme of Action, which aims to address the challenges they face and eradicate the poverty resulting from their landlocked situation by turning them into 'land-linked' nations.

It focuses on transit policy issues, infrastructure development and international trade facilitation in particular, as well as stressing the importance of putting digital technology at the heart of policy objectives.

Customs digitalization, adaptation of rules of origin and new sanitary measures are other factors included that may help to boost participation in global trade.

However, the WTO suggests with its latest report that cooperation and assistance will need to go further if LLDCs are ever going to escape poverty and enjoy benefits most coastal nations probably do not even consider.

For instance, it recommends ensuring women, young people and small businesses are integrated into global value chains to create opportunities and reduce inequality. The document also states partnerships between LLDCs and transit countries are going to be essential going forward, particularly with regard to customs systems.

Other suggestions include lowering tariffs for LLDCs' exports to developed nations and generalizing duty-free market access.

The Delegation of Mongolia on behalf of the Landlocked Developing Countries also said in its recent Ministerial Declaration that additional action is going to be required across the globe to achieve "unfettered, efficient and cost-effective access" to world markets.

It called upon more developed nations to recognize the "major stumbling blocks" LLDCs face in achieving their trade potential and underscored the need for "a universal, rules-based, open, non-discriminatory and equitable" trading system where trade is "interconnected and interoperable".

At a time when governments worldwide are understandably preoccupied with helping their own economies recover from COVID-19, this latest WTO report demonstrates the importance of adopting a global view and taking into consideration the unique problems some countries face as a result of simple geography.