WTO members highlight key role of investment to increase small economies’ trading capacity

At a meeting of the Committee on Trade and Development dedicated to small economies on 2 November, WTO members and international organizations highlighted the challenges faced by small economies in attracting foreign investment — particularly amid the COVID-19 crisis — and discussed ways to facilitate this investment.

Three members of the WTO's Small, Vulnerable Economies (SVE) Group  — El Salvador, Guatemala and Saint Lucia — presented initiatives they have taken to increase foreign direct investment (FDI) in order to expand their trading capacity and support economic diversification. They stressed the need to modernize their countries' trading and investment infrastructure, build resilience to external shocks and increase the predictability of investment opportunities.

The three countries also expressed concern about rising protectionist measures and plummeting FDI as a result of the COVID-19 pandemic. They stressed the significance of the United Nations Sustainable Development Goals and the WTO negotiations for a multilateral agreement on investment facilitation for development, in which 105 WTO members are participating.

A number of participants stressed the importance of implementing the WTO's Trade Facilitation Agreement (TFA). The United States drew attention to the recent joint communication by Australia, Brazil, Colombia, Japan and the United States on accelerating implementation of the Agreement in light of the COVID-19 crisis to help economies gain access to essential products. Reference was also made to the significant role the WTO-led Aid for Trade initiative can play in mobilizing resources to improve FDI flows into developing countries and least-developed countries (LDCs).

The WTO Secretariat noted the importance of FDI regulatory frameworks and investment facilitation policies. It was pointed out that enhanced cooperation at the cross-border and domestic level can help facilitate investment and generate more trading opportunities. Efficient authorization procedures are also very important, notably through the use of electronic processes.

The International Trade Centre (ITC) explained how the organization is helping Mongolia, Mozambique, Zambia and other developing countries identify and implement investment facilitation measures and strategies. The ITC referred to the challenges faced by small businesses in terms of identifying and screening investment flows and their lack of access to finance. It also noted the significant revenue source that FDI represents for developing countries and LDCs.

The United Nations Conference on Trade and Development said that small economies have only a 1.3 per cent global share of FDI inflows. It added that investment flows into SVEs declined by 17 per cent during the first half of 2020, dropping from USD 9.8 billion to USD 8 billion. Among the challenges faced by small economies are connectivity issues due to geographical and infrastructure constraints, vulnerability to natural disasters and climate change, and the difficulty of attracting funding. UNCTAD also stressed the need to build partnerships with bigger economies and emphasized the important role played by investment promotion agencies.

Source: WTO