MSMEs Trade Policy at Work

Trade Policy can Help SMEs Trade Better Globally, if Inclusive

Around the developing world, small and medium-sized enterprises (SMEs) face unique challenges such as difficulties in customs compliance, access to credit, and lack of knowledge about foreign markets. If complemented by other flanking measures, trade policy may be one of the most important tools to support their better participation in global trade, experts say.

“There is a need to orient trade policies in ways that encourage and facilitate trade by SMEs, with flanking measures enabling them to drive innovation and integrate in value chains” said today the Secretary-General of CUTS International, Pradeep S Mehta, while opening a debate at this week’s WTO Public Forum in Geneva.

SMEs are one of the biggest contributors to employment and growth, representing over 70 per cent of all employment opportunities globally and as much as 90 per cent of all employment in low-income countries. Despite the growing importance of SMEs at the national level, their interests are not properly considered at the multilateral level and their participation in global value chains is yet to be fully developed.

As explained by Rajesh Aggarwal of the International Trade Centre (ITC), “While forward integration of African SMEs is high, as exemplified by their exports of raw materials to Europe, backward integration has remained low.”

A country’s trade policy can be an effective tool to enhance SMEs’ participation in global trade. Experiences such as Bangladesh’s garment export industry suggest that national governments are re-evaluating their trade policies to reduce barriers to trade for SMEs. “A key contributor to this success was our trade policy decision to drop duties on imports geared towards garment exports.” said Mostafa Abid Khan, Minister at the Permanent Mission of Bangladesh in Geneva. “Duty drawbacks are another popular tool in South Asia, although it is more cumbersome”, he added.

The success and growth of SMEs is particularly important for the reduction of poverty in the developing regions of Africa and South Asia, particularly women-owned SMEs which play an equal, if not more, important role. Women’s entrepreneurship is an under-utilised source of growth and poverty reduction. In Africa, while they are actively involved in agriculture, women’s ownership of business ranges from 4% in Eritrea to 60% in Côte d’Ivoire. According to gender and trade expert Mona Shrestha Adhikari, “one third of the world’s SMEs are women-owned businesses, but they are stuck at the bottom of the value chain because they lack access to education, skills and finance.”

Women entrepreneurs in developing countries also have poor access to marketing networks, capital, credit and technical expertise, in addition to cultural and structural barriers. “Every country should look at trade policy through the gender lens, and ensure women participate in the policy making process”, Ms. Adhikari said.

Flanking measures in related policy areas are also required, as SMEs are often restricted due to the unavailability of credit, stringent customs and compliance procedures, lack of awareness, as well as business and IT skills etc. Besides gender equality, “other areas to link with trade policy may include digital economy, access to finance, informality and competition policy,” suggested Marcus Bartley Johns, Senior Trade Specialist at the World Bank.

This session titled “Trade Policy: A tool to facilitate the participation of SMEs in global trade”, organised by CUTS International, aimed to facilitate the exchange of best practices, industry opinions, policy making hurdles, and the role that the WTO can play to help Member countries to orient their trade policies. Through over 100 events, the global trade community gathering this week in Geneva for the 2016 WTO Public Forum is reflecting on how to ensure that trade benefits everyone. In particular, women, innovative start-ups and SMEs should be able to leverage trade opportunities.